Long-Term Predictions For The Peso?

[Mockingbird]

Devaluation is only good for the top 1%. Everybody else gets hosed. Lets be serious. These trickle down central banking theories have never worked. Thats a fact. Look at the EU look at the US. ZIRP NIRP etc. Its gone from bad to worse.

 

[EdRooney]

Trickle down, QE, ZIRP(NIRP) are all failed policies to benefit the 1%. They are the opposite of demand side stimulation and a weak currency. The 1% want a strong currency and a weak labour market. You are confused.

 

[ajoknoblauch]

Sorry I didnt have time to answer this yesterday Matías.

Devaluation has two types of effects: direct and indirect.

The direct effect is on creditors/debtors with accounts linked to foreign currencies. In this case it favours borrowers and sucks for lenders. This is can be an exogenous effect on internal credit depending on how tightly capital is tied to the foreign exchange market.

The indirect effects (which are far more significant) have especially to do with the labour market. As the peso devalues it has a double effect: Argentine exports become more attractive, and foreign imports become more expensive. The result of both of these is the development of internal industry, which inevitably improves the labour market: with lower unemployment, real wages go up, employees have more leverage, etc. This in turn leads to more people with more money in the domestic economy (more internal demand) and the effects multiply. So the devaluation has the opposite effect of what you mentioned: it leads to higher real wages.

This is the way all developed economies have always been able to grow-- by fostering internal demand. The examples are everywhere: South Korea in the 70s/80s, West Germany in the 60s, China right now, the US in the 19th-20th centuries...

On the other hand, the idea of having cheap salaries in order to compete has inevitably turned out to be a drain on the economy, as it leads to capital flight. Just look at El Salvador, Haiti, Cambodia, Bangladesh... They get foreign investment, but their overall economies are worse and worse because there is no internal demand.

Does that make sense?

Devaluation is a useful tool at times, but it can also exacerbate inflation.

 

[Rich One]

Trickle down, QE, ZIRP(NIRP) are all failed policies to benefit the 1%. They are the opposite of demand side stimulation and a weak currency. The 1% want a strong currency and a weak labour market. You are confused.

Thanks for this festival of acronyms (Zero or Negative interest)
Guess CFK is doing the correct thing stimulating demand, printing More money. Increasing subsideis Nac & Pop. Elevating bank interest rates.

 

[EdRooney]

Ugh. More confusion:

1. At least since the midterm elections, the Argentine central bank policy has been decidedly contractionary, pulling money OUT of the economy instead of "printing" more. We already discussed this in another thread.

2. High interest rates are also the opposite type of policy. The purpose is to pull pesos out of circulation by offering attractive savings rates.

3. Sorry about the acronyms, I was just repeating what mockingbird said, but i'll try to be more clear in the future. But either way, how were you able to get so Rich without knowing this stuff?

 

[Don Alberto]

... foreign imports become more expensive. The result of both of these is the development of internal industry ...

If, and only if, the industry does not have a serious need of importing capital goods on a large scale.

 

[EdRooney]

On a micro scale yes. Certain industries that are dependent on difficult to replace imported goods will inevitably have a harder time finding domestic suppliers. But the upside is that it opens up the opportunity to start producing those goods locally, thus giving jobs to people locally instead of abroad.

 

[Matiasba]

I think that if you have a good employment level, a competitive tipo de cambio, and a strong internal demand -main cause of inflation- you dont need a devaluation.

The constant need of capital goods for the last 50 years is the reason to understand why we do not have heavy industry. Thats what import restrictions tried to do, to foster local industry, but if you also restrict capital goods, then you re killing industry, cause they are essential. I dont see a solution here.

 

[EdRooney]

It's funny you should place the time period at 50 years.

The solution in the 1950s was import substitution: start producing things in Argentina instead of importing them from abroad. After the 1955 coup, Aramburu and Frondizi favoured foreign capital in order to provide capital goods that Argentina had been producing. This decimated what until then had been surging industrial capacity. Still, there is no reason why Argentina cannot someday produce most of what it now imports for heavy industry.

 

[ajoknoblauch]

I think that if you have a good employment level, a competitive tipo de cambio, and a strong internal demand -main cause of inflation- you dont need a devaluation.

The constant need of capital goods for the last 50 years is the reason to understand why we do not have heavy industry. Thats what import restrictions tried to do, to foster local industry, but if you also restrict capital goods, then you re killing industry, cause they are essential. I dont see a solution here.

So, if it avoids being dependent on foreign technology, Argentina can dominate the world from its own Silicon Pampa.