Neilson Nails It...again.

[Rich One]

ps...we shouldn't be too hard on Neilson, until we see a concrete proposal from any politician in Argentina in terms of a inflation and national debt solution it might be a bit much to expect one from a hack in Miami.

The role of a journalist isn't to suggest proposals, but to report and denoounce.

 

[EdRooney]

I'm not sure whether Mr Neilson is an economist and as such would not be in a position to offer a solution.

He's in a position to complain but not offer solutions? I don't buy that guff. It does not take a PhD in econ to assess the situation here, but it does involve taking off your ideological sunshades, and the writings of Neilson and his ilk are a virtual ray-ban convention.

Echoing what Bradley said, there is really only one way that Argentina can stop inflation (silly printing or price control programmes notwithstanding), and that is by throwing cold water on the demand side of the economy: i.e. cut the subsidies. Practically no politician will come out and say she will cut the Asignación Universal or the subsidies to Chevron and friends. Not that I'm suggesting doing so, but we should be honest. Less pesos in the economy would be the only way.

As I see it, the overriding problem is not inflation (which is in a war of escalation with wage increases). You can argue that declining purchasing power is a problem, but inflation less so). Rather the problem is savings. Inflation is high because of high velocity fuelled by high consumption. Everyone is spending because they cannot save due to low confidence in the peso. Wholesale fixed term accounts are running at up to 27%, which may or may not be beating inflation. So if that's the case, why not raise interest rates? It would most likely suck a good portion of pesos out of circulation into savings and give the middle class an instrument for saving toward houses (purchased in cash pesos!) instead of blowing it all on Audis and Samsung Galaxies.

So if you're a politician your choices are basically cut social programmes and alienate your base, or raise interest rates and alienate your financial backers. Guess which one they'll choose?

 

[Dublin2BuenosAires]

The role of a journalist isn't to suggest proposals, but to report and denoounce.

Well, no facts or figures have been reported in that piece. Quality journalism offers comparisons on a regional and international basis which allow the reader to form their own conclusions, also absent.

 

[glasgowjohn]

If you translate Nielsen into Spanish , who does he sound like?

Verbose , long sentences , big paragraphs..............

Surely its not Kristina in disguise?

 

[sesamosinsal]

Increase interest rates on loans and cards? Is household debt an issue here? I can't find any figures and I don't see any above. I think that's a clumsy measure to tackle inflation.

First and foremost, any plan to fix inflation in Argentina is going to have to be comprehensive. So, this should not only include consumer access to debt, but also social programs, access to international debt markets, etc. The inflation problem is very complex, and it has its roots in media perceptions, production, FX reserves, monetary base inflation, reliance on credit to fuel consumption, etc.

If we look at private sector debt, it's increasing by more than 30 percent a year. Credit card debt is up 45 percent from a year ago. Only 3 percent of Argentine consumers could afford to live without a credit card, and they're mostly used in supermarkets. So, if credit card debt is increasing by 45 percent a year and 97 percent of Argentines must use them to buy food (and other consumer goods) in X installments, what is the ultimate effect? Those funds are transferred to the companies and are used to pay salaries. By the time the x-th installment rolls around, those funds have been circulating in the economy and helping boost demand for (in most cases) months.

At the end of the day, the pain must be spread out. Hard decisions will have to be made. Unfortunately, Cristina Kirchner doesn't like making tough and unpopular decisions. Does anyone?

 

[Rich One]

Well, no facts or figures have been reported in that piece. Quality journalism offers comparisons on a regional and international basis which allow the reader to form their own conclusions, also absent.

My Quote was a sentence from Lanata....!!

I seem to agree with everything said by Nelson, do I have the right to do so ? A Campora typical argument is .... most countries have the same problems....

 

[dennisr]

First and foremost, any plan to fix inflation in Argentina is going to have to be comprehensive. So, this should not only include consumer access to debt, but also social programs, access to international debt markets, etc. The inflation problem is very complex, and it has its roots in media perceptions, production, FX reserves, monetary base inflation, reliance on credit to fuel consumption, etc.

If we look at private sector debt, it's increasing by more than 30 percent a year. Credit card debt is up 45 percent from a year ago. Only 3 percent of Argentine consumers could afford to live without a credit card, and they're mostly used in supermarkets. So, if credit card debt is increasing by 45 percent a year and 97 percent of Argentines must use them to buy food (and other consumer goods) in X installments, what is the ultimate effect? Those funds are transferred to the companies and are used to pay salaries. By the time the x-th installment rolls around, those funds have been circulating in the economy and helping boost demand for (in most cases) months.

At the end of the day, the pain must be spread out. Hard decisions will have to be made. Unfortunately, Cristina Kirchner doesn't like making tough and unpopular decisions. Does anyone?

The high use of CCs for purchases is misleading I believe. Using a CC for day to day purchases is/was about the only hedge against inflation the average Argentine had. CC interest rates were/are often less than half of what the true inflation rate is, especially in 2010, date of your article. Furthermore, wages generally were keeping up with the true inflation numbers. Salary increases of 25% annually are the norm around here. Know it goes against the grain to take on CC debt, but with inflation like it is (25%) and INDEC cooking the numbers to keep interest rates low (15%) makes the real interest rate on credit card debt about -10%. At least that is how this Gomer sees it which for sure does not make it so.

 

[EdRooney]

Bradley,

I like your overall point but I hope you don't mind me playing a bit of Devil's Advocate:

I'm not sure this is really a credit-fuelled aggregate demand boom like you say it is. For example, just look at the study you cite saying that 97% of Argentines cannot make ends meet without their cards. The study comes from 2010 using 2009 data. In Argentine credit terms, that's 50 cuotas ago, meaning that the conclusion must be that their debt is not capitalising, otherwise most of that 97% would be in bankruptcy, since they would have already cycled through debt that they could not pay. In our own case, we make a healthy use of our cards in order to beat inflation. Go to Carrefour when they have the 70% discount and fill the pantry with non-perishables. By the time the bills come due, we have had a pay raise and the goods have a 25% higher price tag. I'm quite sure we're not the only ones who do this.

There is definitely massive consumption going on here, but it does not seem to be financed consumption in the same way as say US consumer debt, which with a mix of student loans and medical bills and mortgages eats away at household wealth. Quite the contrary: the aggregate demand is pushing up prices and wages, and this is then multiplied by the fact that the only thing folks can do with their money is spend it.

This is the way I see it, but I'd love to have you convince me otherwise!

 

[Matiasba]

If some of you knew.... that this inflation as we know it is VERY low if we compared it to Argentine standards (during Peron, Illia, Frondizi, several militars governments and of course Alfonsin).... except for the 90s, which ended in a huge crash (worst crisis ever) Argentina always have had more inflation than this one. Always.

So we re kind of in a very good position historicaly remaining to inflation. Which I d say its rare since production and distribution has been concentrating and 'foreignizating' more and more since the 90s and monoplolies and oligopolies are very common. I believe something good must have been doing this government to keep inflation that low.

Edit: from what I know is very hard to Argentina get rid of this problem. That simply wont happen. So the best situation we can have once we accept inflation, is precisely this one, with growth, with social inclussion, with paritarias every month, with a lot of subsidies and social plans, and a good growth of industry (quality jobs). Yes price control are childish but they must have some effect Id say.
Is this or the exact opposite (as the History shows to us): deflation, recession, unemployment, no social plans, not growth, more poverty, a dead internal market, with a weak demand and an export economy. The model the right always proposed and imposed.

 

[ARbound]

If some of you knew.... that this inflation as we know it is VERY low if we compared it to Argentine standards (during Peron, Illia, Frondizi, several militars governments and of course Alfonsin).... except for the 90s, which ended in a huge crash (worst crisis ever) Argentina always have had more inflation than this one. Always.

So we re kind of in a very good position historicaly remaining to inflation. Which I d say its rare since production and distribution has been concentrating and 'foreignizating' more and more since the 90s and monoplolies and oligopolies are very common. I believe something good must have been doing this government to keep inflation that low.

Yawn, old recycled Argentine semi-nationalist statement. It follows the Argentine response formula to foreigner criticism:

[X] in/on [current/past date] is [better/worse/the same] because [X] was [higher/lower/same] in [insert date]

i.e

Inflation in 2014 is better because it was higher in the 90s.

Also you must always make reference to the Junta because if it's marginally better than that it's good (The Junta was a terrible evil but Argentines hold the country/leaders:society to such low standards even CFK is better if you compare her to 83/84)