Question On Inflation.

[Killarney]

http://www.theguardian.com/lifeandstyle/2013/jun/23/wine-tasting-junk-science-analysis

Sounds like you are the annoying guy at the dinner party talking about the wine.

 

[Matiasba]

There can be a number of causes for inflation. One of the usual culprits, which the government here have done, is to create money. That, along with many other things the policies of this government have done, is what causes inflation.

Didn't Japan, the UK or the US multiplied their monetary base for 5, for 3, etc with a very low inflation rate? we have discussed this on this forum.

You can't ignore the free market and pretend that it isn't real, because it's made up of human wants and needs, which the government simply cannot regulate no matter how hard it tries. And as we see in the US with things like marijuana and other drugs, prostitution, and here with dollars, people will find a way to fulfill their wants and needs.

You can interfere in the free market with varying results (usually short term gains and long term losses, although the reality often seems contrary to theory ), but that's a bit different than trying to destroy the free market altogether (which the government seems bent on doing). Every time the government spends money to keep the official rate down and spends money to keep the blue rate down, they're creating short term gains but the rubber band flexes eventually and the losses down the line will most likely be worse.

Has nothing to do with the blue rate dollar. The blue rate dollar is simply a better reflection of reality than the official rate.

This government is not trying to destroy any market, but regulate it. If they wanted to do something they could forbide the dollar, strenghten the dollar prohibition by chasing cuevas and arbolitos. But no, they give that permission, although the dollar is illegal, they allow this blue market. The thing is, that if there are not the Ks who regulate the market, its someone else. There is someone, the more powerfull agent lets say, that regulates the market instead of the Ks. And for various reasons, not counting my liking for the Ks, I prefer the market to be regulated by a government agency than by some mafious entrepreneur.

About the dollar blue market itself, as I said, its a matter of demand, when you have inflation, people go, like the moth to the flame, to the strongest currency, the more reliable, the one that loses less value in time and you can save on. And if you have 50 years of that situation, being fixed the inflation situation and the dollar ruling the world situation, you get what we have today, people buying dollars expensively and madly in an illegal market. As long as we have inflation, we have dollars demand, and we will have the dollar at the same level than inflation. Dont know what will happen when the dollar crashes, though.

 

[Crema Americana]

Which brings up the interesting question.... why haven't they stomped out the blue? Sure, they go on a symbolic raid once in a while, but I have a hard time not being cynical. Someone is making a killing.

People don't trust the peso because the peso isn't to be trusted - and not just because of historical reasons, but because of all the government does to make sure the hours you work today are worth nothing tomorrow. Cheating doesn't last long.

 

[Alicia karr]

I heard "they" don't "stomp out the dollar blue"because "they" are the biggest users of the service......and that was from an employee of a cueva!

 

[ElQueso]

Didn't Japan, the UK or the US multiplied their monetary base for 5, for 3, etc with a very low inflation rate? we have discussed this on this forum.

I'm not sure which one you're talking about, or if you're talking about all 3.

The US is a special case for a variety of reasons. The other two have something that Argentina doesn't: a good industrial base, a decent economy where people can invest, and reasonable trade policies.

This government is not trying to destroy any market, but regulate it. If they wanted to do something they could forbide the dollar, strenghten the dollar prohibition by chasing cuevas and arbolitos. But no, they give that permission, although the dollar is illegal, they allow this blue market. The thing is, that if there are not the Ks who regulate the market, its someone else. There is someone, the more powerfull agent lets say, that regulates the market instead of the Ks. And for various reasons, not counting my liking for the Ks, I prefer the market to be regulated by a government agency than by some mafious entrepreneur.

You can't get rid of a black market without some seriously violent methods and at least Cristina hasn't gone that far. Besides which Cristina is not so far gone that she doesn't recognize how deep the economic players of this country are in the blue market - she can't just wipe that out because of that. Money is not magical, it is a market item.

Government concentrates power and enables monopolies to exist. A free market tends to kill monopolies. The surest way to get a bunch of mafiosos involved is to make something illegal (or difficult to get). Mafiosos aren't going to be able to force a price on anyone any better than the government can.

The government here is not trying to "regulate" the market, they are trying to control it to their own ends. It doesn't work. Since you can't control a free market, the more you mess with it, the more you damage it. Even Keynes understood this when he was talking about spending money to use as stimulus, for example, and to cut back when the effect was achieved before cycles began to go up and down.

Since you can't control (only, possibly, tweak) a free market, attempting to control it moves things farther from scrutiny and officialdom. While I was speaking in hyperbole about destroying the free market since you can't so easily destroy human wants and needs, it does do it damage.

No one, not even the rich, control the markets, although they can certainly push it toward their favor at least for short times. But government gives the rich more ability to push the market in their direction because government concentrates power and the rich typically wield the tool.

About the dollar blue market itself, as I said, its a matter of demand, when you have inflation, people go, like the moth to the flame, to the strongest currency, the more reliable, the one that loses less value in time and you can save on. And if you have 50 years of that situation, being fixed the inflation situation and the dollar ruling the world situation, you get what we have today, people buying dollars expensively and madly in an illegal market. As long as we have inflation, we have dollars demand, and we will have the dollar at the same level than inflation. Dont know what will happen when the dollar crashes, though.

I disagree. With inflation, and this country has a history with that, the strongest currency is like a good, people go and look for refuge in the dollar, that creates demand, that creates inflation. inflation and dollar always on a par.

Look at your two quotes above.

In the first quote you make reasonable sense. However, one comment I might make is that in another quote of yours above you say the government is "letting people" have dollars and in the first of the two above you say it's illegal. They are indeed trying to destroy the dollar market here and have had to relax some of their draconian measures instead.

But in the first quote above, you say that people flock to the strongest currency when local currency is inflating (which makes sense). In the second post you very specifically say that when people look at the stronger currency for refuge, it creates demand, and the demand creates inflation. A number of people took that comment the same way I did, but I saw you refute it somewhere in the posts above. The text itself is quite clear that you are saying that demand for a strong currency causes inflation in a country with a weak or dying currency (which is why people flock to the stronger currency).

You might have meant something else, but we're all seeing what you said.

And people buy things at what the thing is worth, usually. You say people are buying dollars "expensively" but the truth is the dollar didn't gain or lose much value at all. It's the peso that lost the value and the dollar costs more as a result when talking about buying with pesos. That's not some arbitrary number, but rather what a whole lot of people who trade in other currencies as well have decided the pesos is worth in comparison to the dollar. Which is why so many countries don't want pesos in payment for anything.

I'm reminded of the power bill that Paraguay presented to Argentina a year or two ago. Argentina wanted to pay their bill with pesos and Paraguay didn't want to accept them. Why? Because the market says the peso isn't worth anything near the official rate and people don't like to be screwed, not even when it's Argentina doing the screwing!

 

[thorsten]

I heard "they" don't "stomp out the dollar blue"because "they" are the biggest users of the service......and that was from an employee of a cueva!

Basically the current system is a redistribution of money from the poor to the rich: if you have a high income and are eligible to purchase US$, you just pay the official rate + 20% and can instantly sell it off at the blue market, which makes you a net profit of 30% without any risks. There are not a lot of investments that are as attractive as this... The funny thing is, that a lot of mechanisms actually work this way: for instance, a subsidy on electricity always favors way more the rich people than the poor people, but it's sold as "inclusion". Similarly, high inflation hits the poor people the hardest, but this doesn't seem to be a priority.

 

[bobsnowpuppy]

Does anyone know if the Argentine govt provides tax incentives and subsidies to private corporations (manufacturers) so that they can improve production and quality of output so that people will buy domestic? It would certainly help the trade imbalance, inflation and buoy the peso. Locking down purchases of imports does not solve the underlying issues of antiquated methods and poor product quality.

 

[ElQueso]

The only tax incentives I can remember seeing are the Trade Free Zones that the government had set up in various places (I looked into what was going on in Cordoba around 2009 or so). There were no income tax breaks, but rather import/export/currency breaks if you were in an approved business like software or phone centers, for example.

I don't even know if those are still in effect any more.

 

[Matiasba]

A free market tends to kill monopolies.

I think the exact opposite. I think monopolies are a consequence of free markets.


About controlling the markets, I know noone has the exact number of demand of some product so they can produce that exact number so there wont be waste, etc, but there are indeed very important actors that control a part of the market. Example: La Serenisima and Sancor have the 80% of the milky stuff market. Proove is that they put prices with 60% of inflation. So you re gonna talk me of the uncertain a market is for these players, you think they do not govern and control the demand? Perhaps this is an easy market cause the need of milk is constant, but there are studies, market research. Besides, the dollar blue market is less than 10% the official market, the government know what they are doing, I think they have it under control.

Look at your two quotes above.

I think I did not expressed myself correctly in the second quote (my first post). I meant demand of dollars, the demand of dollars creates inflation. I dont know or remember exactly why, but it is like that.

 

[scotttswan]

I think the exact opposite. I think monopolies are a consequence of free markets.

Both create monopolies. You need to balance a free market with rules that prevent monopolies.