Is It Time To Close The Blue Market?

[Matiasba]

by experience moreso.

Experience is one reason, but expectations envolve other things too. Like dont trusting almost every measure this (or any!!) government can take about the dollar. It is impossible to construct a country without never trusting what the State does. Theres no possible long term policies, only short term beneffits to some people. We re not talking of foreign investors, we re saying that even Argentinos dont trust Argentina. Theres no possible country like that. Of course the only ones who MUST trust are the workers, tied to the peso forever, with no posibilities of invest nothing, but to spill their salaries into the internal market. But the people with money? No one trust Argentina, that explains a lot of our decadence. I found them direct responsible of our recurrents crisis.

 

[EdRooney]

Honestly, it's a lot easier to kick and poke ideas than to come up with them, so fair play, hats doffed etc.

Number 1 and 2 still cannot happen in that order, it'd be nice if the creditors were dopey enough to sign up for it, but it's wishful thinking.

Your making some nice assumptions about Argentines learning to accept their fate and biting the bullet, I don't see it. They're are wiley bunch and it'll take a sea change for them to bet on the peso. Slowing down monetary velocity is economist-speak for killing economic activity stone dead. It's unpalatable and the results would be greater mistrust in govt control, however temporary, and even greater mistrust of govt investment vehicles. You can't kick someone in the balls, let them lie on the floor then tell them to stay down there and that you'll tell them when it's a good idea to get back up again !

I don't accept your point about command economies, because it is kind of silly to sing that song in relation to the 21st century. Context is king, I'd expand on that but I think's it reasonably self evident and it's too hot. Also, your playing zero sum games with your comparisons, I hate the free market model and all it's libertarian loony-ness (must be word?), I would advocate well regulated capitalism as the best of bad bunch. Control does not work in a 21st century context were international events, competition, the internet, easy movement of goods and capital will always corrupt your best intentions.

Hermetically sealed economies in a modern context do not work. Better?

Agreed on the hermetic business and agreed not to turn this into an overworn Marx vs Friedman thread.

The issue we were looking at was how to bring inflation down. Inflation comes from overheated aggregate demand, so the anti-cyclical orthodoxy would say, dump cold water on demand. Hike interest rates, increase savings, get pesos out of the economy. These aren't some type of newfangled restrictions; theyre just basic central bank measures that every major economy uses. The only people that might get spooked about them are the usual gold bugs who gnash their dentures with every tenth of a percentage point. But look, the Fed hiked interest rates continuously in the late 90s and early 00s, and no one west of Glenn Beck accused Bernanke of running a Stalinist economy.

Second there are government backed CDs, kind of a poor man's T-Bill. Nothing really outlandish there.

The most radical proposal might be the mortgage regulations, but you're from Ireland so I shouldn't have to preach to the choir as to why they're crucial, and since they're toward the end of this whole plan, they would be put in place later once the housing market heats up, all for the purpose of avoiding speculative bubbles. I want to see Argentine families have equity, and owning their own homes with no mortgages is the best place to start.

Lastly, the Confidence Fairy. If we're going to say that Argentines have some genetic disorder that makes them unable to someday have confidence in their own currency, then any idea of improving the economy here is just wasted electrons. On the contrary, what I am talking about is a way to restore confidence. It's going to be a long process (I imagine decades), but it is a cultural change that can happen if the right policy choices are made (and no I don't have any delusions that they will).

Oh and one more point: you are probably right about my debt negotiation plan being pure fantasy, but it's either that or continue the dollar squeeze on the central bank.

 

[John.St]

Important caveat to my support of point 9.

This bacon better be the hearty slab of porky goodness I'd see back home in Ireland and not that dried up sliver of crunchy pig flavoured cellotape you people serve up in the US and other bacon illiterate countries. i want to have to chew that thing.

You mean 'da reale zing'?

 

[Dublin2BuenosAires]

I have never studied economics, these are just my observations. I could tell you very little about Friedman and his ideas. Thankfully.

I don't think Fed hikes, which never arrived at a level to flatline an economy, can be compared to what you are proposing here other than at abstract level, i.e. without taking into account context, specifically the existing high level of interest. I agree with what you say applied to a different economy. Unfortunately an existing rate of 30% just kills the idea stone dead. It's too high and comparing a booming 90s US economy to a choking Argentine economy in 2014 is like comparing Apples to Egyptian hyroglyphics. It's meaningless. Interest rates have to be above inflation or the lender loses out, to cool the interest rate you have to cool inflation. I believe we are beyond the tipping point were the measure is effective, too much risk involved in killing housing markets and small investors opening private businesses. Works of course, if you are ideologically opposed to that as a concept, I'm not.

Nothing outlandish, except in Argentina, where the concept of faith in the govt or govt financial instituion as a value store for your assets is a well established fallacy.

Mortgage regulation is critical, but the problem in Ireland was not mortgages per se, in an economy with normal levels of inflation mortgages are not an issue for me. I absolutely support regulation, and it would have softened the blow to a great extent in Ireland and stopped a bubble potentially. In short, if you can't afford a mortgage you should rent. I don't support the concept of owning bricks and mortar as a human right, rental markets should cater to those who cannot buy (there are some very old and solid lending rules around mortgages which worked for a long long time before they were binned in Ireland) and below that ceiling public housing should be available to support those who cannot afford to rent. Thats brush strokes but basically I think ownership via mortgages is not an issue for me. De-regulation created the bubble, it happened because the de-regulated flow of capital (eurozone) required that all this new free money find a home somewhere, following the path of least resistance (least regulation) it landed in the Irish property sector...investing anywhere and everywhere.

I think you are again playing zero sum games to justify a fairly extreme position, mortgages per se are not unfair, once deregulated they hurt everyone but well regulated and leveraging a normal interest rate they provide a way of maintaining population mobility (family growth, change of familiy location) and a market which can benefit the country in the form of transaction taxes (which should not be so onerous as to kill that market)

There are no fairys here, just people who have been severly burnt by the govt in relation to wealth stored in banks. That hurts, and it takes a long time to start trusting again. It's back to human nature, trust is the hardest thing to earn. I do agree, there has to be some way to restore confidence over the longer term, but politics here (and around the world I guess) is set up for short term gain. Electorally it's going to be very difficult for someone to implement your measures, they will make a target of themselves and there will always be someone (like me!) to take pot shots from the sidelines without proposing any solutions. Again, knocking down is easier than building up and it's an all to common electoral strategy.

It's also probably time to stop printing pesos, surely that is a fairly significant driver of inflation? Engage with international markets (hopefully after removing that maggot P Singer via the Supreme court) , re-establish credit and stop the reliance on an ever decreasing circle.

 

[Joe]

You mean 'da reale zing'?

(picture of disgusting thing removed)

If you're going to post food pictures on Joe's thread please make it pizza.

In honor of dollar blue (which BTW doesn't deserve to be honored) may I present: Faina pizza with Blue Cheese: Fainá is a nutty, peppery flatbread (related to the italian flatbread farinata) made with garbanzo bean (chickpea) flour. Fainá is hugely popular in both Argentina and Uruguay. It's often served as an accompaniment to pizza (pizza a caballo). This version of faína - topped with chorizo sausage, blue cheese and spinach - makes a great appetizer, and is a gluten-free alternative to regular pizza.

 

[Dublin2BuenosAires]

You mean 'da reale zing'?

sweet baby jesus...we're just missing some H P sauce there.

 

[EdRooney]

You keep worrying about rates over 30%, but you are aware that fixed rate CDs are at 27% right now, right?

 

[John.St]

If you're going to post food pictures on Joe's thread please make it pizza.

In honor of dollar blue may I present: Faina pizza with Blue Cheese: Fainá is a nutty, peppery flatbread (related to the italian flatbread farinata) made with garbanzo bean (chickpea) flour. Fainá is hugely popular in both Argentina and Uruguay. It's often served as an accompaniment to pizza (pizza a caballo). This version of faína - topped with chorizo sausage, blue cheese and spinach - makes a great appetizer, and is a gluten-free alternative to regular pizza.

(picture of disgusting thing removed)

I know Argentine "pizza" - one inch of dry, flat bread covered with muzzarella.
This "pizza a caballo" shows what is wrong:

"pizza a caballo" is a slice of regular pizza (usually plain mozzarella pizza) - Yaaaaaaaaaaaaaaargh!!

In all of Gran Mendoza, there are only two places one can get pizza, one is American style, the other run by two Italian immigrants. The rest is as bad as Turkish "pizza".

 

[Dublin2BuenosAires]

You keep worrying about rates over 30%, but you are aware that fixed rate CDs are at 27% right now, right?

I swear I just answered this...but the post has disappeared. I am not typing it out again! ...arrghh.

CDs = value store.

We need capital in the economy (SME via commercial lending) and housing market. Not sure I see your point?....other than to confirm that the rate is way too high right now to facilitate either of these things.

+5 on 27% pushes the return above the real rate of inflation potentially, this is a loss leader for banks (or the govt) so I fail to see how that benefits anyone?

Printing pesos for me is a more significant fuel on the fire of high inflation, interest rates are intrinsically dependent on inflation, you can't artificial control those to effect inflation. Need to turn off the tap on worthless spending (100m pesos on world cup para todos...please, has anyone ever confirmed the amount of houses without cable or a dish...i don't think that no internet no dish/cable market exists to a great extent!) and spend more on infrastructure, education and housing stock. Stop printing money to pay bills which have been created to buy votes...100m isn't enormous but by god it adds up. Engage with credit markets to fund long term infrastructure, which creates employment.

 

[EdRooney]

1. The point is not enough people are buying CDs. Argentines aren't saving their money they're spending it. So why arent they saving their pesos? Because no one knows what inflation is or will be, so those CDs are unattractive, and there are dollar restrictions on other non-peso savings vehicles. So steps 1-3 in my plan are meant to reverse those problems. Publish honest inflation numbers. Keep inflation predictable (One good thing recently is that even though inflation is way too high, 2008-2012 was probably the steadiest its been here ever. Too high, but staying at a constant level.) If you can keep inflation constant and known, then investors have more reason to buy CDs/bonds/whatever.

2. I don't see a capital shortage as being a major problem right now. Maybe you can convince me?

3. Yes it's a loss leader that's why it has to be government-backed, funded by the 0.004% financial transaction tax.

4. If recent history has taught us anything it's that the relationship between printing and inflation is tangential at most. Just look at QE in the US or its equivalent in Japan or the CBE's latest ploy. They are all printing like mad and inflation's not budging. Furthermore, if you look at BCRA issuances and CPI there's no recognisable correlation. In layman's terms it's the demand that matters not the paper fiction created by the central bank.