redrum said:
buy gold and silver.
argentina does not have a monopoly on printing money, devaluing currency and creating inflation. the same thing will eventually happen to the united states as it is also priniting money out of thin air and has a debt to gdp ratio worse than greece. another round of QE3 is on the way as we speak. countries are already conducting trade in currencies other than the dollar.
eventually the dollar will also be slowly(happening right now) devalued or have a bank holiday for a sudden correction. all fiat currencies eventually go to zero. all we need to do is take observance of the fact that many central banks are drastically increasing their gold reservers in anticipation of what's to come.
Actually, there are a few errors in this post:
- The US debt-to-GDP ratio is considerably smaller than that of Greece (103% vs 165% according to Eurostat, with both GDP numbers severely depressed due to recession/depression).
- The effect of inflating the money supply in a liquidity trap is nil. By "liquidity trap" I mean a situation with a severe lack of demand, in which even negative interest rates will not incent spending or investment. As the US economy heals and interest rates rise, the Fed will indeed need to reign in the money supply. But for now, it does no harm and helps a little.
And then, Argentina is not in a parallel situation. Unlike the US, Argentina's economy is still growing rather healthily, and there is enormous demand by consumers and businesses. This demand cannot be met by national products; ergo the market looks to imports to fill the demand. To buy these imports, Argentina needs hard currency (i.e. dollars) that it no longer has because its agricultural exports are down because of poor harvests and essential imports like petroleum are growing rapidly. Plus it's wasted an enormous number of dollars trying to support the value of the peso (for reasons I can only speculate about, as below).
The shortage of goods increases their prices. This is especially true for imported goods whose flow is now harshly restricted by government policy. Even with merely strong demand, once an imported item shows up at a higher price, a price of a similar national item will increase as well. The policy of trying to match import and export volumes by importer has only worsened the situation by creating a new, costly, and inefficient financial market for trading import licenses, which has boosted overall inflation by a few percentage points.
camberiu said:
Eventually yes. But I do not think it is imminent. Let me explain.
In the case of the US, the authority to control the money supply belongs to the Federal Reserve. The Fed has been flooding the market with money in order to try to re-inflate housing prices and the stock market. The issue is that the Fed cannot give the money directly to the public. The money supply must go thru the banks. Here lays the problem: The US banking system is literally insolvent. The banks are sitting on trillions and trillions of dollars worth of bad loans. So, as the Fed pumps money into the market, the banks hoard the cash instead of lending the funds. The do so because they are capital impaired and need to hoard as much cash as possible. Q1 and Q2 have so far been a drop in the bucket when compared with the size of the financial black hole of uncollectable loans that are sitting on the bank's balance sheets. Therefore, banks will simply not lend. So, unless the Fed increases the money supply by an order of magnitude or two, we will not see hyper-inflation in the US. It will eventually come, of course. But the Fed will need to print MUCH more for that to happen.
Here also, I beg to disagree. Your argument about US bank hoarding was somewhat true 3 years ago when the Fed considered it essential to re-capitalize the banks rather than let them die, but that's no longer the case. The US banking system is in generally good shape now. If you look at the balance sheets of the major US banks, you'll see very little in real estate loans or in securities backed by real estate. It is still vulnerable to stupid moves allowed by inadequate regulation, as JPMorgan Chase showed last week, but most knowledgeable parties believe the banks have actually written off considerably more than their potential losses from any further issues in real estate transactions.
It's the European banks that are in rel trouble. During the crisis, the ECB began allowing its banks to carry any EURO sovereign debt on their balance sheets at face value, so they loaded up on the highest-yielding debt, like that of Greece, Portugal, Spain, and Ireland. Now they are stuck with assets whose value is far less than what the ECB permits them to show on their balance sheets. Many of these banks would be literally insolvent if they were required to show the actual market values of their assets.
The US banks are hoarding for one simple reason: no one wants to borrow money. Whether consumers or businesses, Americans are demonstrating the paradox of thrift. And in textbook fashion, the economy can't grow if at the same time everyone is saving or paying off old debt, which in macro terms amounts to the same thing.
I think you are right that the Fed's moves have had positive effect on the US stock markets. With real interest rates at zero or less, investors understandably are willing to take a little more risk in hopes of garnering a level of return that exceeds the rate of inflation. The rather healthy US equity market and low long-term interest rates brought about by the Fed's QE are the only reasons the US is doing as well as it is, which is still astonishingly poor due to lack of any real fiscal stimulus.
NOW back to Argentina. Since I arrived here in 2006, the BCRA has always tinkered with the exchange rate. But I don't think they started intervening seriously until the K's began planning their 2011 presidential campaign.
For many Argentines, the strength of the peso indicates the strength of the country. I believe the manipulation was - at least initially - a political move to boost confidence in the 18 months leading up to the elections. Of course, this was in parallel to an expansion of social welfare programs that boosted overall demand in the economy, and with the increased demand, growing inflation.
Unfortunately, what might have been a 25% gradual devaluation over 2 years now looks like an overdue, dramatic devaluation. As I've speculated in other threads, I would not be surprised to see a return to multiple official rates of exchange as well.
But hyperinflation? I tend to agree with camberiu that it doesn't seem imminent. But then again, what constitutes hyperinflation? Is 30% per year tolerable? 50%? 100?
