Theories on why Dollar is Strengthing vs Peso

[nikad]

While I agree with most of what is said here, I must question one point; How will devaluation benefit property sales when all property sales are done in US dollars?

With a more devalued peso, building homes should get cheaper, so properties should cost less dollars.

 

[soulskier]

I too am not sold on house prices going down. One common practice we see here is for a house to be on the market a while, and they raise the price. I always thought that was loco myself, and of course most of these properties never sell.

 

[sergio]

I don't necessarily think that prices will drop. I think that a higher dollar / euro will keep BA attractive and that will help to sell property to foreigners, especially Europeans.

 

[nikad]

Well, most of the investors at some real estate specific forums I read daily, predict a price downfall between 20-40% in the next year, year and a half.

 

[RWS]

As a lucky and thankful person that is able to earn dollars and live on pesos, I feel bad for the common Argentine folk that don't have that option. Not sure what the solution is, but wanted to state I feel for the locals. . . .

Part of the solution is actually doing something to help the poor, such as giving both time and money to charities that offer free or reduced-price foodstuffs. There are many such charities in Buenos Aires, and some must exist in so populous a place as Bariloche, too.

 

[soulskier]

RWS, my wife and I have begun a community outreach project in Bariloche. I did a post on it.

In addition to distrubuting warm clothes (we are paying to have them shipped, our friends are donating from back home), we are teaching English and soon, computer lessons. The idea is to give locals tools they can use to succeed, if they choose.

 

[RWS]

Excellent, SS! Useful and admirable. Would that all of us would do as much.

 

[enjoyingmylife]

Inflation will only be worse with a devalued peso, no? Anything that is imported will cost more pesos to import and will therefore make anything that uses it more expensive. So, things such as oil, natural gas, plastics will cost more and therefore home heating, driving, transportation costs (i.e. for food), and many products that use petroleum (plastics) will be more expensive. Inflation touches everyone, but hurts the lower classes the most, because more of their income goes toward food and heating, etc.

As far as the future value of the dollar is concerned, it's hard to say. The money the US gov't is spending is countered by what's called "asset deflation", which is the loss of value of assets like houses, stocks and bonds. There has been a ridiculous amount of this asset deflation (many, many large and small fortunes lost), and many very smart people think deflation is more of a concern than inflation. This is one of the views of Ben Bernanke, the Federal Reserve Chairman, who guides US monetary policy.

The value of the dollar is truly only determined by whether flows into or out of it are greater. No matter how much money the US "prints", if US dollar-denominated assets are considered more attractive than others, then the dollar will strengthen. Whether that will remain the case, vamos a ver. The US cannot continue to add to its borrowing indefinitely, or its ability to pay back its debt will eventually come into question, bringing the dollar down severely. This will be a major problem in the US for decades, and will have to lead to diminished government expenditures and unhappy people, but the other option is sigificantly greater financial collapse than we have seen so far.

Es familiar, no?

Bigbadwolf has confirmed what I said - and what I stated earlier. What is happening now is a mini-devaluation. The reality is that the country is dependent on exports. To be competitive, the peso must be devalued. Tourism, also important, will benefit. Sales of property and land to foreigners will benefit. I don't know if this devaluation will hurt middle class people as much as someone said here. A moribund economy due to inflation and increasing difficulty in exporting - compounded by a worldwide economic downturn - would seem worse.

 

[bigbadwolf]

A new article by Paul Craig Roberts:

What explains the paradox of the dollar’s sharp rise in value against other currencies (except the Japanese yen) despite disproportionate US exposure to the worst financial crisis since the Great Depression? The answer does not lie in improved fundamentals for the US economy or better prospects for the dollar to retain its reserve currency role.


The rise in the dollar’s exchange value is due to two factors.
One factor is the traditional flight to the reserve currency that results from panic. People are simply doing what they have always done. Pam Martens predicted correctly that panic demand for US Treasury bills would boost the US dollar.


The other factor is the unwinding of the carry trade. The carry trade originated in extremely low Japanese interest rates. Investors and speculators borrowed Japanese yen at an interest rate of one-half of one percent, converted the yen to other currencies, and purchased debt instruments from other countries that pay much higher interest rates. In effect, they were getting practically free funds from Japan to lend to others paying higher interest.

The dollar’s rise is temporary, and its prospects are bleak. The US trade deficit will lessen due to less consumer spending during recession, but it will remain the largest in the world and one that the US cannot close by exporting more. The way the US trade deficit is financed is by foreigners acquiring more dollar assets, with which their portfolios are already heavily weighted.

For general context, I also found a piece by Mike Whitney useful.