The Argentina Solution For Greece

[RodalfoWalsh]

have been warning about this for years. I eve mentioned it when we had an BAExpat meeting with an Argentine economist back in 2012 (I think). He was very bullish about the future of Argentina, specifically because of the emergence of Brazil. And I told him that Brazil was standing on a very weak foundation and once it went, he could kiss Argentine exports bye-bye. And here we are.

Was that guy really an economist? I thought it was Kicillof's younger brother mini me.

 

[sesamosinsal]

My comments on monetary policy were only related to Camberiu's point that the current government has partially implemented economic policies from the Menem years. I agree with him here, mainly given the exchange rate manipulation and subsequent devaluations. The next one will happen after the elections, regardless of who is elected.

As far as Greece, of course monetary policy can't be the answer because Greece doesn't have control over its monetary policy. Even if it did, we agree that monetary policy alone isn't going to be enough. Look at the United States. Fiscal policy doesn't accompany monetary policy, and monetary easing is becoming increasingly less and less effective:

And the Fed is going to increase rates, thereby making money even more expensive than it is now in an already deflationary economy. It's not going to be pretty.

Regarding Vanoufakis' blog, it just seems like a lot of excuses. Of course Greece is a bit different, but the fundamental problems are the same. It's also not true that Argentina did not have other currencies as a result of the crisis. It did. Lots of them. Patacones, anyone? http://es.wikipedia....ki/Cuasimonedas

 

[camberiu]

I am very skeptical that the federal reserve will raise rates anytime soon. I think we will continue to see lots of posturing, but I doubt they will actually raise rates.

 

[sesamosinsal]

OK I agree with you, but let me play devil's advocate a little?

Varoufakis and others have said that it is very easy to say "just take the pain" when you are not the one who will have to live the next 5 or 6 winters without fuel to heat your house or cook food. Any solution must be the best one possible for the Greek people. There are thus more or less three options:

1. Staying in the union and refusing to implement austerity, perhaps till the EuroGroup kicks them out (in which case I propose the George Costanza solution: just keep showing up to the meetings after you've been fired)​

2. Storming out of the union, in which case they would have to default, immediately nationalise the banks and implement draconian capital controls. In this case, it is entirely unclear what would happen legally to everything from private contracts in € to existing trade agreements. Millions of hours of work for lawyers.​

3. Planning a managed exit with the Troika, trying to squeeze as much liquidity and time out of the ECB to keep basic services running, pensions paid, humanitarian aid (very much needed), etc. Even this plan would take a matter of years according to most analysts.​

So which option would you prefer, or do you have a better idea?

The only way out of the debt bubble is inflation. If the Germans want to keep the Eurozone together, they'll start printing.

 

[sesamosinsal]

I am very skeptical that the federal reserve will raise rates anytime soon. I think we will continue to see lots of posturing, but I doubt they will actually raise rates.

Actually, I am too. They really can't raise them, but they're so desperate to make it seem like everything is back to normal.

They have to be terrified. If the trend line holds true, the Fed can raise interest rates to maybe 4 percent before it causes another recession or bubble to burst. The longer they wait, the worse the bubble is going to be.

 

[Pensador]

Either way Greece burns slowly one way or quickly the other way if it was was me I would take all the pain as fast as I could and get it over with. But in the case of Greece I guess it comes down to how fast are you willing to fall down the hill. Or do you want a hard landing or a soft landing.

But you really cannot compare Greece to Argentina socially. Argentinians are accustom to crisis and groveling in poverty Greeks are not. The Argentina route may prove to produce fair more upheaval in Greece than it did in Argentina.

Once again entitlement thinking without the understanding of the production and hard work that produces entitlement wrecks another country.

 

[camberiu]

They have to be terrified. If the trend line holds true, the Fed can raise interest rates to maybe 4 percent before it causes another recession or bubble to burst. The longer they wait, the worse the bubble is going to be.

They better be terrified for the mess they created. Here is another reason why then can't bring rates back to normal.

 

[Rich One]

OK I agree with you, but let me play devil's advocate a little?

Varoufakis and others have said that it is very easy to say "just take the pain" when you are not the one who will have to live the next 5 or 6 winters without fuel to heat your house or cook food. Any solution must be the best one possible for the Greek people. There are thus more or less three options:

1. Staying in the union and refusing to implement austerity, perhaps till the EuroGroup kicks them out (in which case I propose the George Costanza solution: just keep showing up to the meetings after you've been fired)​

2. Storming out of the union, in which case they would have to default, immediately nationalise the banks and implement draconian capital controls. In this case, it is entirely unclear what would happen legally to everything from private contracts in € to existing trade agreements. Millions of hours of work for lawyers.​

3. Planning a managed exit with the Troika, trying to squeeze as much liquidity and time out of the ECB to keep basic services running, pensions paid, humanitarian aid (very much needed), etc. Even this plan would take a matter of years according to most analysts.​

So which option would you prefer, or do you have a better idea?

4. Default and after 5 years offer 35 cents on the Euro. Contact Kicillof for advise

 

[EdRooney]

Brad:

If I read you correctly you are misunderstanding Varoufakis' point about parallel currencies.

He calls the situation "bifurcation" meaning that the currency most people have their savings in would be different from the legal tender currency:

[font=Helvetica Neue']This means that, by the time we come to an exit from the euro, the [/font]stock of savings[font=Helvetica Neue'] will be in euros and the [/font]flow of incomes and pensions[font=Helvetica Neue'] (once the banks re-open) will be in drachmas. So, unlike in Argentina, a Greek euro-exit will drive a [/font]wedge between stocks and flows[font=Helvetica Neue'], savings and incomes; with the former revaluing massively relative to the latter. Moreover, the very availability of such large quantities of ‘hard’ currency savings, in the hands of the average Dimitri and Kiki on the street, will ensure that the decline in the value of the new drachma will be precipitous (something that did not happen in Argentina since most savings were in pesos also).[/font]

(bold mine)

This is not the same as the patacones or the barter systems in Argentina since no one really used them for savings.

Here Varoufakis doubles down on his earlier point that Argentina had the advantage of already having pesos in circulation:
[font=Helvetica Neue'][font=Helvetica Neue']

[/font]

...it is one thing to break a peg linking your currency to some other hard currency (as in the case of Argentina)...and quite another to have no currency but to have to create one from scratch. In the case of Argentina the peso was in existence. All it took to devalue it was to announce that the 1:1 peg with the dollar was over.[font=Helvetica Neue']

[/font][/font]
For the record, like you I am not really on board with his ideas either, because I think he is trying to avoid the inevitable: Germany wants Greece out of the EU. Furthermore, SYRIZA's negotiations thus far with the Troika have been piss-poor. They threw away their only trading card (threatening Grexit) before they even got to the negotiating table, and they are not taking actions to prepare for the inevitable Grexit like printing tax scripps (aka TANs) and preventing capital flight. For an alternative view from within SYRIZA, see Státhis Kouvelákis here.

 

[Matt84]

But you really cannot compare Greece to Argentina socially. Argentinians are accustom to crisis and groveling in poverty Greeks are not. The Argentina route may prove to produce fair more upheaval in Greece than it did in Argentina.

Once again entitlement thinking without the understanding of the production and hard work that produces entitlement wrecks another country.

1) I think it's the other way around. At least I would prefer to be groveling in poverty in a Aegean beach than in the campo or villa. If I was forced to stay in Athens, I'd go to Pireus.

2) Can you rephrase that sentence considering that a) Greece's 150 year old history as an independent state is founded on entitlements for being "Greek" (America even helped them during their independence mutiny) and b,) Greece is not exactly bankrupting Germany, quiet the opposite.

Anyway the Euro is not going away, until and if, complete destruction. Otherwise it would be an early admission of defeat. They are not backing down.
The fact that Britain managed to keep using the Pound Sterling is an achievement comparable to the Battle of Britain.