I don't really understand economics...

[steveinbsas]

How do adherents to the Austrian School address shortages of currency? If there's a group of five people selling stuff to each other with only 50 pesos in circulation, each, on average will have 10 pesos. If five more people join the group and the money supply stays the same, there will be only 5 pesos on average. Vendors would have to adjust their prices or no one would have the money to buy their products, even though they may have paid more for raw materials before the actual production of their products. People with loans would end up paying more for their debts. Consumers, retirees, savers, etc. would benefit from the increased value of their money over-time. Quite honestly, this stuff sounds like a communist's wet dream... Where am I wrong?

Your model is a bit small, isn't it?

There is no such thing as an economy of five people selling things to each other.

You aren't even talking about enough individuals to form a tribe (though they might be able to form a band)...and then you introduce terms like consumers, retirees, and savers...and people with loans.

That has to push the puopulation to a number greater than five...or even ten.

Quite honsetly, your model is absurd...and, therefore, so are your conclusions.

 

[sesamosinsal]

Quite honsetly, your model is absurd...and so are your conclusions.

It's a simplified model. It's irrelevant if there are 5, 10, or 50 billion people. It was to highlight the point that deflation would occur under monetary policy that did not expand the monetary base.

A growing population would mean that the value of money itself would have to increase because prices would have to go down. This is beneficial to consumers, retirees, and savers. However, it could present problems for manufacturers and those who have to take on debts grow.

Save your condescension for someone else.

 

[el_expatriado]

It's a simplified model. It's irrelevant if there are 5, 10, or 50 billion people. It was to highlight the point that deflation would occur under monetary policy that did not expand the monetary base.

A growing population would mean that the value of money itself would have to increase because prices would have to go down. This is beneficial to consumers, retirees, and savers. However, it could present problems for manufacturers and those who have to take on debts grow.

Save your condescension for someone else.

In a deflationary economy savers are king and debtors must be very careful about how much they borrow. Pretty hard to generate asset bubbles, though. Things would be a lot more stable and we'd end the boom and bust cycles.

 

[camberiu]

It's a simplified model. It's irrelevant if there are 5, 10, or 50 billion people. It was to highlight the point that deflation would occur under monetary policy that did not expand the monetary base.

A growing population would mean that the value of money itself would have to increase because prices would have to go down. This is beneficial to consumers, retirees, and savers. However, it could present problems for manufacturers and those who have to take on debts grow.

Save your condescension for someone else.

I don't see how deflation would present problems to manufacturers. Semiconductors and computers have been on a state of MASSIVE deflation since the dawn of the industry. Has it discouraged investment? Has Intel, ARM, Apple, IBM or Qualcomm invested less in research and manufacturing despite the massive deflation that their products suffer over time?

 

[steveinbsas]

It'

Save your condescension for someone else.

Who's being condescending?

You made the model. You live with it. A model of five people that can be applied to 50 million is not scientific.

It's downright rediculous.

To say it could apply to 50 billion disqualifies anything you have to say from serious consideration for anything, but you replacing Joe Biden as the vice presidential candidate in the 2012 election could be good for the Democrat ticket.

And yes, I have a university degree in economics.

 

[redrum]

How do adherents to the Austrian School address shortages of currency?

brad, check out this interesting documentary by bill still called the secret of oz:

http://www.youtube.com/watch?v=swkq2E8mswI

you bring up an interesting point regarding shortages of currency. in theory, the amount of currency should increase/decrease with the amount of products in the economy, whatever amount is necessary to facilitate trade.

the question, is who actually gets to control the issuance of currency and credit? that is where the real power and deception lie because you can essentially take money out of the economy to cause a crash or increase liquidity to create growth.

according to still, most western governments do not print their own currency. instead they "outsource" it or grant the exclusive right to a third party, private bank, which is controlled by a money cartel. that's why when money hits our economy, it comes in as debt because the central bank has purchased govt. bonds, which then turn into physical/digital cash. whereas if the govt. actually printed its own money, it would owe no debt to anyone. this is one of the reasons why ron paul wants to "end the fed".

watch the documentary, it's worth checking out. i don't know if bill has all the answers however it's certainly better than what we have now. the ultimate solution most likely lies somewhere in between.

 

[sesamosinsal]

Camberiu -- It would certainly depend upon the rate of deflation. It would only be harmful if there were a spiral. Thank you for the link.

Redrum -- I will check out this documentary tomorrow. I'll probably have more questions afterward! Thanks for sharing.

 

[TrevorCito]

It is not something that I am particularly interested in but I have been trying to follow along as my move to Buenos Aires is set for September.

So I have a few questions that I would like some help with. If someone could explain I would be very grateful. Remember, this is not my strong point so simple terms and examples would be appreciated.

1. Everyone agrees that Argentina is heading into a recession correct? Normally don't prices of items go DOWN in a recession? Why is it that Argentina prices are going up?

2. I realize that the worst part about a recession in unemployment.. which i think leads to increase in crime... but what else should one expect during a recession?

3. If the value of the peso continues to decrease. I realize that this is bad for Argentina as a whole but... is it negative for those who make their money in dollars/euros? It seems to me that this would be a positive for increasing tourism... Is that not true? why?


Thanks in advance, I am going on faith that there is no such thing as a dumb question!

Hi Jamila

A few people have given you some excellent answers and I would like put some ideas on the table as well.

1. A recession is technically a decline in economic activity measured by two consecutive quarters of negative growth as measured by gross domestic product (GDP). I would suggest that since Christina began with a range of undocumented economic reforms that Argentine GDP has begun to slow in many sectors of the economy for more than the last 6 months so yes, in my opinion we are in a recession.

2. Expect tax increases, a reduction in manufacturing/production civil unrest and desperate moves by the government to control and limit the civil and economic liberties of the countries citizens and residents. YPF, Currency restrictions, travel limitations, changes to the convertability laws that allow citizens to transact in UDS. Yes, jobs are impacted as reactionary moves by the government make investors nervous but job losses actually stem from a larger issue related to economic stability, government interference in business and lack of investor confidence in the economy and currency. Three integral components for a healthy economy are 1) stability, 2) the availability of funds/liquidity and 3) the velocity or rate at which the funds move through the economy. What is the point if an investor has money under their pillow but is to scared to invest it? Funds for investment and liquidity come from investors and tax revenues so if investors are nervous and don't invest/circulate the money then the government is forced to step up and intervene by creating liquidity paid by tax increases. Eventually tax increases fail to cover costs, money printing sky rockets, inflation goes through the roof and and the economy collapses. Is Argentina an attractive place to invest? Absolutely not. Silly really because all the government really needs to do is to create a stable environment with minor regulatory controls and the money will begin to circulate which will in turn create jobs and increase the value of the peso. Basic stuff really but the government here has demonstrated time and time again that it lacks even the most basic understand of economics. While I disagree with the approach taken by the government over here, I understand where they are coming from. They don't trust investors and understandably investors don't trust them hence the cycle continues as the government further alienates the country from investors and continues to see itself responsible for not just collecting taxes but also actively taking control of companies (YPF).

3. A devaluation of the peso would increase tourism but that would generate somewhat minor returns for the country in comparison to other export related revenue sources. Would there be more or fewer jobs with a cheaper peso? Only when investors begin to gain confidence in the political, legal and social frameworks will the country begin to grow again with jobs. As mentioned before, a cheaper peso can increase the supply of money but not the velocity or rate at which it is circulated.

If you make your money in dollars or Euros then the economic impact on you if you live here will be less than for those earning AR pesos. The government is not opposed to the inflow of dollars, in fact, they want them more than anything else to pay international interest on debt so you are unlikely to face issues bringing money into the country from abroad. Taking money out is a whole new ball game and the subject of many other posts. A devaluation of the Peso will have some benefits as it will increase the attractiveness of Argentine manufactured goods abroad by making them cheaper. Unfortunately prices will go up as a result but this should not be confused with growth or GDP.

I predict a significant devaluation of the peso once the government completes interest payments on the bonds it has issued. Why? Because for those who have read the Argentine government bond issue contract, the interest rate for repayments is set by INDEC which has been overtaken by the government. It is sadly in the national interest to lie about growth and inflation as these components are used to calculate interest paid for bond coupons. This equates to an illegitimate/dishonest saving of hundreds of millions of dollars over the life of the bond issue as the government cheats bondholders. Once the government is freed from the burden of interest payments they will no longer have reason to lie about growth, interest rates and the value of the peso to the same extent as before. The moral of the story.... don't buy Argentine government bonds... EVER because you will have no recourse to collect nor to argue the return.

These are highly technical areas and there is much that could be and has been said by many in this forum so I hope that this thread has helped answer your questions.

Regards
Trevor

 

[jamila]

Thank you to all that gave simple answers to my questions.. It really helped a lot. I am still coming to BA. I am interested in where things will be economically when I arrive in September.

For those few of you that are arguing about economic theories please start another thread. I asked for simple answers to simple questions and so I am confused why part of this thread has fallen to people arguing and making fun of each other's economic theory. I am not particularly interested in economic theory but if you have some information that I can use without having to read a research paper or dissertation I am interested in hearing about it.

Thanks again I hope to meet some of you in the future! See you in September!

 

[sleslie23]

Thank you to all that gave simple answers to my questions.. It really helped a lot. I am still coming to BA. I am interested in where things will be economically when I arrive in September.

Jamila, the truth is no one has a clue where we will be next week, September, or next year. Inflation is very high, with no end in sight. There may or may not be a recession. There may or may not be food shortages.

Who cares? You have a great reason for wanting to come to Buenos Aires. Just come and have fun, and most importantly, don't spend much time on baexpats!