So, Price Controls. When Will We Begin To See Shortages?

[Montauk_Project]

I heard on NPR how Brazil solved their inflation crisis: they invented the real. I always thought that real meant "royal" and was their form of currency, like the peso, but no.
Inflation was a huge problem in Brazil, so an economist came up with a "crazy" idea: the government would print out the real prices, expresed in "reals" and these had to be displayed next to the actual price in the currency. The store could put whatever price they liked, it could go up with inflation, but people would get used to the "real" price of the item. Then after a year of this, the government unvailed the new currency, the "real". Inflation went away because people learned the "real" price of the item.
A lot of this is political and psychological, and the Brazilian example is very interesting.

 

[JamJam]

I heard on NPR how Brazil solved their inflation crisis: they invented the real. I always thought that real meant "royal" and was their form of currency, like the peso, but no.
Inflation was a huge problem in Brazil, so an economist came up with a "crazy" idea: the government would print out the real prices, expresed in "reals" and these had to be displayed next to the actual price in the currency. The store could put whatever price they liked, it could go up with inflation, but people would get used to the "real" price of the item. Then after a year of this, the government unvailed the new currency, the "real". Inflation went away because people learned the "real" price of the item.
A lot of this is political and psychological, and the Brazilian example is very interesting.

Is thats story 'real'?

 

[camberiu]

I heard on NPR how Brazil solved their inflation crisis: they invented the real. I always thought that real meant "royal" and was their form of currency, like the peso, but no.
Inflation was a huge problem in Brazil, so an economist came up with a "crazy" idea: the government would print out the real prices, expresed in "reals" and these had to be displayed next to the actual price in the currency. The store could put whatever price they liked, it could go up with inflation, but people would get used to the "real" price of the item. Then after a year of this, the government unvailed the new currency, the "real". Inflation went away because people learned the "real" price of the item.
A lot of this is political and psychological, and the Brazilian example is very interesting.

If what you say is true, I am very sorry that a public funded organization (NPR) is doing such a disservice to its audience. This explanation is not only overly simplified, but actually incomplete. I was living in Brazil at the time and there were no "crazy" ideas to tame inflation. The government actually took a very orthodox economic approach. What they did was the same as what Argentina did: It pegged the Real to the dollar. Basically the government guaranteed that ANYONE could go to the Brazilian Central bank and exchange a newly printed Real for a dollar, no questions asked. And the Brazilian government had tons of dollars in reserves to back that up. A Brazilian Real all of a sudden was the equivalent of a US dollar, and as long as the government maintained the exchange guarantee and had the reserves to back it up, having a Real was as good as having dollars. So that is how the inflation was put under control.

 

[lamarque]

When the price freeze is up the inflation rate will probably double to compensate. I love how they mentioned in the news that the supermarkets, AKA "chinos",refuse to sign the price freeze agreement making them sound they like profitable money hoarding Scrooges. Yet I often find the price for The same product in a chino costs HALF than the exact same thing in Coto o Carrefour. Example in a chino: milk $4.50, Frutigram cookies $6.00, ricecakes $6.50, can of lentils $5.50, pickles $12.00. Carrefour: milk $9.00, Frutigram cookies $12.00, ricecakes $10.00, can of lentils $8.50, pickles $22.00. Just stick with the chinos and be sure to check the expiration date on all products. They're still cheaper than the major supermarkets with price freezes. Elevated prices frozen that will probably double when the freeze is over.

That time is long gone, chinese supermarket are much expensiver than the big chains of super market, you should go and check yourself, but still people go to them because they are near to your home and more practical to make small buys without queue. But the times of cheap chinese supermarkets are looong go.

Going back to the subject, there will not be shortage for this 3 month because the price where fixed on their maximun, so the supermarket are confortable with this price for 3 months, then they will rise for sure. So the control is just stupid.

 

[lamarque]

If what you say is true, I am very sorry that a public funded organization (NPR) is doing such a disservice to its audience. This explanation is not only overly simplified, but actually incomplete. I was living in Brazil at the time and there were no "crazy" ideas to tame inflation. The government actually took a very orthodox economic approach. What they did was the same as what Argentina did: It pegged the Real to the dollar. Basically the government guaranteed that ANYONE could go to the Brazilian Central bank and exchange a newly printed Real for a dollar, no questions asked. And the Brazilian government had tons of dollars in reserves to back that up. A Brazilian Real all of a sudden was the equivalent of a US dollar, and as long as the government maintained the exchange guarantee and had the reserves to back it up, having a Real was as good as having dollars. So that is how the inflation was put under control.

And we all know how this finish for Argentina and Brazil as well.

 

[camberiu]

And we all know how this finish for Argentina and Brazil as well.

Fortunately, at the time Brazil was under a much better management than Argentina (That has changed since then). Unlike Argentina, the FHC government did some serious and deep financial, fiscal and structural reforms. The Federal Budget was balanced, lots of government spending was cut and laws were passed requiring every state and municipality to have a balanced budget. This allowed the government to unpeg the Real from the dollar without causing inflation, as no money was being printed to cover deficits.
Argentina, on the other hand, did very half-assed reforms and tried to maintain the peg indefinitely as their reserves began to run out. Without the proper reforms and balanced budgets, they could not unpeg the Peso from the dollar without massive inflation. So, when the dollars ran out, the whole thing here imploded.

 

[JamJam]

That time is long gone, chinese supermarket are much expensiver than the big chains of super market, you should go and check yourself, but still people go to them because they are near to your home and more practical to make small buys without queue. But the times of cheap chinese supermarkets are looong go.

Going back to the subject, there will not be shortage for this 3 month because the price where fixed on their maximun, so the supermarket are confortable with this price for 3 months, then they will rise for sure. So the control is just stupid.

That depends. My local Chino is cheaper than the supermarkets. The only one that is cheaper is Dia.
I've heard a lot of things about how expensive Chinos are but in reality there is just a lot more variability in their prices compared to the big supermarket chains.

 

[Illinoisjoe]

I believe I heard the NPR piece Montauk Project is referring too and I think she was oversimplifying a bit for the sake of brevity. *I* thought it was great, though admittedly economics continue to completely baffle me. Here's a link to the audio:
http://www.thisameri...oney?act=1#play

If you'd like the whole thing as an mp3, I've got it so PM me.

 

[Joe]

admittedly economics continue to completely baffle me.

Don't feel alone, the President and her Ministry of Finance feel the same way - hence the Price Controls.

 

[Joe]

Next you'll be advising the K-regime to import "Economic Experts" from Cuba as Venezuela has done.