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Great Leap Forward

MMT, ARGENTINA, AND VIEWS ON INFLATION

(Part 1?)

On the surface, the data from Argentina look awfully good—among the top performers in the world over the past decade. And she’s apparently done it without a run-up of either private sector or government sector debt. In other words, Argentineans have bucked the trend among developed countries, that saw (mostly) tepid growth fueled almost entirely by debt.

And that seems to be at least in part due to a policy choice. Argentina had been the poster child for Neoliberal policies all through the 1990s—they adopted virtually the whole Neolib agenda lock-stock-and-barrel. They even adopted a currency board. And unlike Euroland (which also adopted something like a currency board as each member adopted a foreign currency—the euro), Argentina would have consistently met the tight Maastricht criteria on budget deficits and debts over that period. The main purpose of the austere budgets and currency board constraints was to kill high inflation. It worked. But, over that period unemployment grew and GDP growth was moderate. I won’t go further into the problems encountered at the turn of the new decade but the whole thing collapsed into a severe economic, financial, and political crisis. In a last desperation move, the government abandoned the currency board (or, you could say the currency board abandoned the government!), defaulted on its debt, and created a Jobs Guarantee program called Jefes.

(You can read more here: http://www.levyinstitute.org/pubs/wp_519.pdf; and here http://www.cfeps.org/pubs/wp/wp43.html; or if you want a first-hand account by Daniel Kostzer who played a major role in bringing Argentina out of crisis by helping to create and implement the Jefes program, read this: http://www.levyinstitute.org/pubs/wp_534.pdf)

Starting from the depths of a horrible recession, then, Argentina climbed back to recovery—not only making up for ground lost in the downturn, but also in many ways by rectifying problems created by the Neoliberal experiment. Some of the policies of privatization have been reversed; unemployment and poverty were reduced; the trend toward rising inequality was reversed; government ran budget surpluses and the economy ran current account surpluses; investment grew at a fair clip; and so on. I’m not going to burden you with lots of data but here are a few snippets. Caveat: I realize it does depend on the starting point. If you begin at the bottom of a trough then by definition the data are going to look mighty good climbing toward a peak. But my point is that if we begin with the implementation of the policy of the Kirchners (the husband and wife tag team model to which the Clintons might have aspired) and run it to the present we get an admittedly superficial measure of success of their policy. We will turn in a minute to the argument of the critics—which is by no means a small fringe. The current President’s popularity has fallen substantially in recent months. It is that phenomenon under examination: why all the angst if the data look good?

Argentina’s per capita GDP measured at US dollar purchasing power parity is nearly $18,000 according to the IMF (note the source)—highest in South America—compared with, say, less than $12,000 in Brazil. Its Human development index is just a hair lower than Chile’s—at the top of the region, according to the UNDP. Its real GDP growth was 8.9% in 2011 and 9.2% in 2010. Industrial production has grown at an 8.1% rate since 2003. Grain production is up by a third since the crisis. Investment has risen as a percent of GDP from less than 19% in the neoliberal period to nearly 21% under the “socialist” Kirchners. And despite what you might think, the vast majority of the increase of investment has been private—not public, which accounts for only a couple of a percent. Labor’s share of GDP has been climbing toward 50%, up from 40% under the Neolibs. Unemployment rose through the Neolib experiment from a low of about 6% in the early 1990’s to around 15% before the crisis. Under the Kirchners it fell from nearly a quarter of the labor force to 7.2% today. And get this, the Gini index rose under the Neoliberals from around 0.45 to 0.50, and then to 0.53 in the crisis, but has fallen steadily under the Kirchners back to less than 0.44. (As a reminder, a Gini of 1.0 means complete inequality; a 0 means complete equality.)

What about deficits and debts? The current account was consistently in deficit under the Neoliberals—running around $10 billion annually. After the crisis it was in surplus, reaching as high as $10 billion before the Global meltdown; by 2011 it had fallen to zero. The current account surpluses allowed the country to accumulate significant international reserves—reaching over $50 billion by 2010 (falling thereafter—a point to be briefly discussed later). Government has been running large primary fiscal surpluses—on the order of 3% of GDP. This allowed it to greatly reduce government debt ratios: from 167% of GDP at the beginning of the 1990s to 42% at the end of 2011. Public debt denominated in foreign currencies fell from 133% to 25% of GDP over the same period (due in part, as mentioned above, to default). Only about half of the government debt is now held in the private sector. Corporate indebtedness is equal to 23% of GDP (this is at the very low end of the range of countries; for comparison the number is 90% in the US and 94% in Chile). Household indebtedness is an extremely low 8.4% of GDP (versus 39% in Chile and 87% in the US). That is not too surprising: with a current account surplus larger than the budget surplus the private sector has been running a surplus that allowed it to pay off debt and accumulate savings.

OK we could go on and on and on. Where’s the beef? What the heck is wrong with Argentina?

On the basis of what I saw on my latest visit, I’d finger two issues that upset a large cross-section: inflation and capital controls (to be more specific, restrictions on domestic conversions from peso to dollar holdings). Let me briefly turn to those issues.

Obviously, Argentina has a complex history that is almost unfathomable to the outsider. Among the highest living standards in the world in 1900; destination for Nazis with the fall of Hitler; land of coups and juntas and the disappeared; and Evita. I’ve visited Argentina several times and spent a fair amount of time talking to government officials, Jefes participants and project managers, and piqueteros. With good reason, there’s a fair amount of distrust—and a lot of that is aimed at government, although some government officials mistrust their constituents. So, it is not too surprising that many Argentineans buy the argument that government is manipulating data, especially on inflation.

As already discussed, the official numbers are around 10% but unofficial measures put it as high as 25%. People that I think are reasonably credible argue that the official number is too low, but the actual number is probably substantially below 25%.

Why do I doubt the higher number? When I visited Argentina early in the recovery, my own very informal survey found a purchasing power parity (that is to say, going across the exchange rates of dollars to pesos) adjusted price level of about 60% of USA prices (ironically that was about the same as Australian prices adjusted by the exchange rate—now Australia is a very expensive place for Americans to visit thanks to currency appreciation and inflation). I don’t eat burgers, so I cannot do the “Big Mac index” (I saw billboards for Mac burgers at about $3 US, but do not know the American price). Fortunately, I do have the teenage girl index. I brought my daughter along and she bought two dress shirts and a skirt at a trendy store in the Recoleta area for a US dollar price of less than a hundred bucks; that was about midway between Target prices and trendy store prices in the US—certainly nowhere near to Manhattan Boutique prices. So, Argentina prices in terms of US dollars have risen noticeably but not outrageously. Over the same period, the exchange rate of the peso has fallen, from 35 cents per peso in 2003 to 26 cents in 2009 to 24 cents last year and to 21 cents now. That, of course, helps to keep the dollar price of purchases in Argentina down—or inflation in pesos higher. But that doesn’t compute to anything like a 25% inflation rate year after year.

Yes, that is anecdotal, and tourist purchases are a small part of the consumer basket. Still, put it this way. If the inflation rate were 25% for 4 years in a row, prices would rise from 100 to 244. (The claim is that inflation has been running at 25% since 2008.) At that pace, you’d see a big difference.

More importantly, if prices are rising at a 25% pace that means real GDP is vastly overstated. Indeed, it must have been falling at a very rapid clip. That is extremely hard to reconcile with the data I reported above. Sure, you can claim government manufactured fake data on all sorts of other measures. That is why I pointed out that at least some of the data come from independent sources. If we are to believe the 25% number, then it isn’t possible for Argentina to have recovered in real terms—unemployment ought to have remained in the high double digits, the wage share shouldn’t have risen so much, the Gini shouldn’t show falling inequality (low inflation can be associated with rising equality but high inflation usually hits wages), and so on.

It stretches credulity to believe that Argentina has actually been in a deep depression for the past 4 years once we subtract the “true” inflation rate of 25% from nominal GDP to get real growth. With real GDP growth reported at 8-9%, if we subtract the extra inflation claimed to be equal to 15%, we’ve got real output falling at 6 or 7% a year—Great Depression type numbers. How on earth did Cristina Fernandez de Kirchner win the last election by a wide margin in the middle of a Great Depression? And, finally, if inflation is running at 25% and the bank overdraft rate has been running around 20% (with a spike to 25% a few months ago), you’ve got basically “free money” to play with—borrow now and pay back with cheaper pesos later—so why don’t we see in the data a big boom in borrowing and lending? (We actually see credit growth falling since last year.)

So there are inconsistencies in the data that at least cast some doubt on the claim that inflation is 25%.

Philip Pilkington has already written a very good piece on attitudes toward inflation and on the main source of the claim that inflation is actually running at 25%. See here: http://www.nakedcapitalism.com/2012/05/philip-pilkington-democrats-vs-technocrats-son-of-neoliberal-economist-who-manufactured-policies-that-led-to-argentinas-default-is-the-source-of-contrary-statistics-on-inflation.html. I won’t repeat his argument in detail, but the alternative inflation measure was created by Alberto Cavallo, an Argentinean, and Roberto Rigobon, a Venezuelan. As it happens, Cavallo is the son of the former finance minister who oversaw the implementation of the Neoliberal policies in the 1990s. Sons do not always follow their fathers in politics and ideology, but I’d be pretty darned surprised if Cavallo, Jr., is a big Kirchner supporter. (And my guess is that Rigobon didn’t cast his vote for Chavez in the recent lopsided election.) He’s probably got a dog in the hunt.

Me, I don’t. If inflation really is running at 25%, so be it. Does that make Argentina’s central bank the worst in the world? I don’t think so.

I realize that people hate inflation. Economic studies actually find that the negative economic effects of moderate inflation are small—and by moderate I mean in the range of 10% to 20%; one famous study by orthodox economists even found only small effects up to an inflation rate of 40%. Indeed, the evidence is pretty strong that employment and growth do slightly better with moderate inflation than with extremely low inflation (although stagflation is also a possible result). How much people hate inflation probably depends to some degree on how they got to high inflation, and how long it’s been going on. If inflation were to suddenly rise to 10% in the US, I suppose American voters would quickly turn against President Obama in the same way they’ve turned against President Kirchner. Latin American countries have lots of experience with what we northerners would consider to be unacceptably high inflation. Argentineans enjoyed relatively low inflation in the 1990s—as I’ve explained—and it is not surprising that they do not want to return to the pre-currency board high rates. So, by pointing out that economists do not find big negative economic effects of inflation does not mean I’m downplaying it. After all, our center at UMKC has always been called CFEPS: Center for Full Employment and Price Stability. We understand that no matter what economists say, people prefer low inflation. So do we.

It is relatively easy to formulate a policy to bring down inflation (although implementing the policy will be more difficult). Despite what you hear all the time, wage and price controls work. (J.K. Galbraith successfully fought inflation in the US with a combination of such controls plus rationing during WWII when the economy operated well beyond full capacity. Nixon also successfully used them later.) The problem is that the controls do affect incentives and generate imbalances that set up longer term problems for the economy. So it is not so much a question of whether they work, but of how you will get off them. They must therefore be implemented with a clear plan for restructuring the economy in a manner that sustained growth with price stability can be maintained after they are dropped. Ditto the currency board: it can be used to eliminate inflation, but it so constrains fiscal policy that productive capacity and jobs generating capacity are hindered. Again, you must have a restructuring and a plan to get off the currency board and back on to a sovereign currency. Finally—and this can be painful—if you’ve had inflation for a long time, your economy has probably put in place institutional measures that in a sense institutionalize inflation. Such as price indexing of wages, pensions, and interest rates. To bring inflation down, and keep it down, you will need institutional changes to eliminate the “inertia”. This is difficult, especially in a society with class conflicts—you need a buy-in of workers, pensioners, and price-setting firms to get agreement to phase-out the indexing on the expectation that inflation really will be brought down.

I’m no expert on these matters. I am favorably impressed by the work done by my friend Luiz Carlos Bresser-Pereira, former finance minister of Brazil. He played a role in bringing down inflation in Brazil and learned from the experience—including from his own admitted mistakes. What he now promotes is a new approach that he calls New Developmentalism (go here www.bresserpereira.org.br). This is all well outside my area of study, but it makes sense to me. It is a new take on Latin American structuralism, with a dose of “go-it-alone” nationalism that rejects the austerity that the IMF and World Bank want to impose on developing nations. It sounds rather like the recommendations I heard the Governor of the Central Bank of Argentina as well as the Vice President making at the conference I attended. What is important is that Bresser is arguing for structural adjustment to fight inflation—not austerity. That is in-line with what I argued above. Austerity actually makes it more difficult to implement the structural changes required to permanently reduce inflation. And it worsens class conflicts since austerity hits workers and especially lower income workers more severely.

I wanted to say more about attitudes toward inflation, the supposed culpability of the Central Bank in stoking the fires of inflation, the recent capital constraints aimed at reducing dollar hoarding, and the role the mainstream media plays in promoting a growing reaction against the Argentinean Central Bank and the President, but this blog has already gone on too long. I guess there will have to be a Part 2.

Here’s the preview: no matter what the level of inflation in Argentina (10% or 25%), the central bank is not a significant contributor. Indeed, the types of policies proposed by its Governor are consistent with the restructuring that will help to reduce inflation pressures over the long run. Further, what most critics look to—the size of the central bank’s balance sheet, for example—has nothing to do with the inflation pressures. Central banks don’t do helicopter drops of money. Whenever I go outside, I look up to see if Uncle Ben Bernanke is piloting a helicopter in my neighborhood, as I really would like to get my hands on one of those infamous bags of dollars he supposedly injects into the economy. Unfortunately, I never see him. Mercedes Marco del Pont doesn’t have a helicopter, either. I looked. You’ve got to look elsewhere for the pesos—they are not falling from the sky.

19 Responses to “MMT, ARGENTINA, AND VIEWS ON INFLATION”

EconoMonitorsOctober 9th, 2012 at 6:18 pm

All: in response to popular request the settings for comments are undergoing changes. There will be light moderation of comments. Vitriolic name calling won't be permitted, so some posts will be refused and/or deleted. Right now I do not understand the moderating system but with luck will figure it out over the next few days with help from Economonitor staff who will be implementing the moderation.

RonTOctober 9th, 2012 at 7:58 pm

Makes sense although I think to critics you will come across as downplaying the inflation burden. Say it is "only" 15% a year. It is still a huge burden to everyone not in a strong, politically connected union who sees his savings deplete 15% a year, unable to transfer them into an anchor of real estate or other real not decaying asset. So I guess those who are in unions and get 20% per year pay increases are happy, those who don't are not.

This article http://www.economonitor.com/blog/2010/03/some-ref…
says that capacity utilization is only about 70%, so looks like now inflation feeds on itself via institutionalized wage increases, the govt that wants to be popular is unable/unwilling to stop it.

Even if the CB is not guilty here, it still remains true that Argentina and Venezuela have much higher inflation than others, a strong anti populist or anti MMT argument, even if not true. Looks like the orthodoxy is right: you cannot have full employment and price stability at the same time. I hope they are wrong but Argentina is a warning they might be right.

McwopOctober 9th, 2012 at 8:26 pm

Good stuff. I have a few questions:

1) Isn't the inflation simply a result of the economy's ability to finally raise prices after a period where there was little pricing power – is the inflation starting to show signs of slowing? So higher inflation along with better unemployment and income growth rates is not necessarily the end of the world? I think average salaries in Argentina grew almost 30% in 2011.

2) How much of the surpluses are from Oil prices versus economic growth pushing up tax revenues.

3) Why if running surpluses is their growth? Aren't surpluses bad per se from an MMT perspective – or are exports adding money into the economy?

4) Be interesting to see if the rich got richer, all while the poorer did better at the same time.

j0wnOctober 10th, 2012 at 3:42 am

I would love to see you write something with Luiz Carlos Bresser-Pereira. I think his National Development Strategy (international competition strategy) gets right to the core of The State Theory of Money and public purpose.

For example, from his Globalization and Competition (2009):

“A national agreement is the basic social contract that gives rise to a nation and keeps it strong or cohesive; it is the compact among social classes of a modern society that enables this society to become a true nation, that is, a society gifted with a state capable of formulating a national development strategy.”

A national development strategy is "concerted economic action oriented toward economic growth that has the nation as its collective actor and the state as its basic instrument of collective action.”

Also, I do think his emphasis on the exchange rate as the key development variable might be a nice – and sexy – contemplation for MMT, or at least a component of MMT that looks to explicitly account for and build on the development theory literature.

The exchange rate “is in the core of development economics” and can be thought of as a “light switch” or exchange-rate management policy that is adjusted to expose or mitigate exposure of national state-of-the-art industries to global demand as well as to neutralize the cyclical overvaluation of the exchange rate.

And, from a paper earlier this year on Structural Developmental Macroeconomics:

“the economic theory that explains economic development as a historical process of capital accumulation with incorporation of technological progress and structural change in which the accumulation depends on the existence of profitable investment opportunities offered by the sustained growth of demand, which, on its turn, depend on the even increase of the domestic market and of exports.”

Just a thought, probably crazy. I also thought that The Rolling Stones should do a film with Jean-Luc Godard once too … with a bunch of craziness, and Marxian stuff, and Black Panthers and long shots of the Stones composing Sympathy for the Devil … oh wait, that happened though. Well, sorry, thank you.

DiranMOctober 10th, 2012 at 8:37 am

Randall, why is there such an emotional and viral reaction to the Argentina and also to a less extent the Iceland examples with such praise for Greece and the EU hairshirt method that are far harder rationally to justify.

Iceland and Argentina – like any business case – admitted insolvency, moved on to Chapter 11 and cleaned their debts plus currency devaluation to move on. The EU approach is to pretend and extend, provoke policies that deflate severely GDP and create ever large financial losses plus bankrupting major sectors of the private economy and creating massive unemployment. What is so good about this???

Afterall, is Greece more credit worth now than back in 2009 at the eve of this mess? What about all the past and potential present loan losses? How did this come about? By magic???

What is it about EU policty makers that they are so infatuated with all this GDP destruction and Ponzi debt losses as somehow the salvation of the world?

L. Randall WrayOctober 10th, 2012 at 12:24 pm

jown: Very briefly because I cannot explain in detail in a short reply. Good idea to write with Bresser; he has an edited book coming out that contains a paper of mine (plus his own). On the exchange rate, my position is that “it depends”–I do not insist on a floating rate but I’m less convinced that managing it is as important as he argues. True, you must control “capital flows” or “markets” will cause excessive flux; the big danger for a country like Argentina or Brazil is overvaluation–which is also what Bresser worries about.

L. Randall WrayOctober 10th, 2012 at 12:29 pm

Diran: There has been quite a reaction against Argentina’s default–including domestically because (as is typical in such cases) even residents took a loss on the dollar denominated debt. I’ll briefly write on that in Part 2. On Greece, things are complicated because it is a member of a union; its fellow union members obviously don’t want to take a loss–instead they want to squeeze every drop of blood out of Greece before it leaves. And if it does leave it will get punished severely precisely because it has been integrated into Europe. Europe cannot punish Argentina in the same manner; nor could the US when she left the “dollar union” of the currency board. As President Kirchner has proclaimed, Argentina is sovereign.

kkalevOctober 10th, 2012 at 12:58 pm

Dear Mr Wray. What I would be very interested to learn (it's rather hard to find statistics on Argentina) is if food and oil prices have a much higher weight on inflation indexes in Argentina compared to the US or the Eurozone. Is there any significant difference in the goods basket used to measury inflation in Argentina?

jsb2012October 10th, 2012 at 2:53 pm

Hi Randy, I must say that I share some of your scepticism about the inflation figures. When I met economists in BA I tried to get an answer to what are the drivers of the inflation figure, as if we were to run a model and the answer wasn't fully convincing: a bit of this and a bit of that.

Maybe it is that the structure of the economy just doesn't allow a stable model to be formulated. The consensus about private sector forecasters is surprisingly clustered around the 20%+ y/y which you have to admit matches the evolution over the past years of other official figures for nominal variables: primary expenditures (25-30% y/y), private formal sector wages (23-35% y/y) or M1/M2/M3 running at 30%+ on the most recent data (and a similar 20+ y/y evolution in prior years). Sectoral wage negotiation rounds in 2012 started with wage increases in the 25%+ y/y for most sectors, a far cry from the paltry 8-10% inflation that the Kirchner-intervened statistical office has been forced to report over the last years. Perhaps next time you travel you should meet with Secretary of Commerce Moreno for further background.

Moreover, to the embarrassment of the government, the figures published by the provincial statistical offices were twice (or more) the national figure which is hard to square and Argentinean opposition parliamentarians had to provide their Congressional immunity protection in order to have the private sector estimations published as the government imposed punitive fines to private sector analysts. This is all a matter of public record.

The problem nevertheless goes beyond a dispute on inflation figures, there is no reasonable metric that would give you the government's figure over the last years. The goal of the inflation manipulation was to reduce the interest costs associated with the public sector inflation-linked bonds which issued further to the default in 2002. The casualties of this policy have been, besides the investors in these bonds (read pension funds) misrepresentation of economic statistics with some link to CPI such as the poverty rate and the real growth rate. On the GDP figures note however that the GDP deflator has been in the 15+% y/y, they couldn't figure out how to fudge this one out.

But the main casualty has been investment and confidence: exclude real estate investment (as a way of recycling the agro-USD bonanza), agricultural machinery and car manufacturing (a result of a booming Brazil and a policy of peso undervaluation) and you don't have much else. The government did not allow prices to move in line with inflation and companies did not invested in energy and infrastructure in general. Public transport is a mess (read about the Once accident) and you could hide in some of the potholes you find around BA.

As for the central bank, perhaps you noticed that in effect the country runs under multiple exchange rates: the official, the street one and the financial one: hardly the result of a successful central bank (and government).

Finally, Argentina has been honoured with some high-profile visitors of the MMT world such as yourself or Gennaro Zezza. The theory is promising and its unemployment fighting ultimate goal is definitely laudable but please be wary of tainting its validity by reading the wrong lessons from the Argentinean experience or making the policies of the current government as the “poster child” for the theory.

Happy to continue the discussion by email. Best regards,

JSB

Emerging & Frontier Markets Today 2012.10.10 - Diverging MarketsOctober 10th, 2012 at 3:40 pm

[...] “It stretches credulity to believe that Argentina has actually been in a deep depression for the past 4 years once we subtract the “true” inflation rate of 25% from nominal GDP to get real growth. With real GDP growth reported at 8-9%, if we subtract the extra inflation claimed to be equal to 15%, we’ve got real output falling at 6 or 7% a year—Great Depression type numbers. How on earth did Cristina Fernandez de Kirchner win the last election by a wide margin in the middle of a Great Depression? And, finally, if inflation is running at 25% and the bank overdraft rate has been running around 20% (with a spike to 25% a few months ago), you’ve got basically “free money” to play with—borrow now and pay back with cheaper pesos later—so why don’t we see in the data a big boom in borrowing and lending? (We actually see credit growth falling since last year.)” — L. Randall Wray at Economonitor [...]

L. Randall WrayOctober 10th, 2012 at 6:12 pm

Thx JSB. The general sense I get from your post is inflation has plausibly been running at 15% minimum (15+9% real growth = 24% which gets us near several of the nominal figures you quote including wages which appear to have been growing slightly faster than nom GDP to increase the wage share). One can think of reasons why provincial govts would be much happier to report higher inflation than the national govt. And yes, inflation indexing bonds is exactly one of the indexation schemes that builds in inertial inflation–a huge mistake. However, please understand, NO ONE I know if is holding up Argentina as an MMT model for running an economy. Where’s the universal job guarantee to provide a bufferstock (to help stabilize wages and prices)? Most MMTers prefer ZIRP (definitely not 10% base rates plus inflation indexing!). Most prefer greater flexibility of exchange rates. And we oppose export-focused growth. Defaulting on dollar debt is the MMT recommendation, but Argentina should have gone whole-hog. And so on. I’m just arguing that a) the central bank’s multiple mandates is a vast improvement over the popular single mandate; b) blaiming the CB for all of Argentina’s problems and claiming it is the worst in the world is just plain silly; c) the Kirchners’ general policy framework (including refusing to succumb to IMF etc) seems sensible; and d) the 25% inflation claims seem to be to be overdone. Finally, it is perhaps a political mistake to carry through on defaults on dollar promises and to restrain conversions to dollars but clearly these are the correct things to do economically.

DoctorLemonOctober 10th, 2012 at 9:37 pm

When trying to assess the success of policies in whatever country, when must look at them in their regional and not only temporal context, something I did in my previous post that has been conveniently removed.

The fact is that Argentina and Venezuela have the highest rates of inflation but not the highest rates of growth if you consider an inflation rate between the official and the unofficial one.

Every South American country has been growing at historical pace for 10 years, and improving all their indicators, regardless of whether there is a right left-wing or centre government, but only Argentina and Venezuela have strict capital controls and an official exchange rate that is far off the market rate.

This is what you have to look at, not only compare where Argentina is now compared to 10 years ago.

DoctorLemonOctober 10th, 2012 at 9:38 pm

cooking the official inflation rate is basically a trick to default on the inflation indexed debt

L. Randall WrayOctober 11th, 2012 at 2:14 am

Yes some posts were removed–those that engaged in name-calling and other personal attacks, including several of yours. Such posts will not be permitted in the future. You can try to rewrite your previous post leaving out the attacks. Provide the data to support your claim here.

While I do not necessarily endorse adjustable pegs, it is certainly within the right of any sovereign nation to do so; and it is also their right to maintain capital controls. Indeed, historically it has been the norm.

I suppose it is convenient to presume that Argentina tweaks the data, but others do not? Could be true. But is not a warranted hypothesis.

L. Randall WrayOctober 11th, 2012 at 2:15 am

Yes, and indexing debt to inflation is a bad idea, and someone who thinks inflation is bad ought to oppose it as a highly inflationary mistake.

L. Randall WrayOctober 11th, 2012 at 12:54 pm

Yes some posts were removed–those that engaged in name-calling and other personal attacks, including several of yours. Such posts will not be permitted in the future. You can try to rewrite your previous post leaving out the attacks. Provide the data to support your claim here.

While I do not necessarily endorse adjustable pegs, it is certainly within the right of any sovereign nation to do so; and it is also their right to maintain capital controls. Indeed, historically it has been the norm.

I suppose it is convenient to presume that Argentina tweaks the data, but others do not? Could be true. But is not necessarily a warranted hypothesis.

Why don’t you write up your position for Troll Friday? You’ll have space there for a thoughtful response.

Edward StevensNovember 13th, 2012 at 3:26 pm

Another de-dollarization by the Argentines (whoi next to the Greeks have the worst record for forthrightness of anybody:

• La Nacion and Reuters reported on Friday that the Province of Formosa will pay in ARS the debt service of USD-denominated local law bonds (2022 Notes which have an amount outstanding of $42 million). Formosa is the second province, after Province of Chaco, to pay debt service in ARS. Additionally, the story mentions that the Province of Tucuman could also decide to pay in ARS the debt service of USD-denominated local law debt.
• The main difference between the Formosa case and the Chaco case is that Formosa's decision was consulted with bondholders, who supported the decision (over 85% of approval). Chaco's decision was made unilaterally by the Province.

helsworthDecember 30th, 2013 at 9:02 am

I also share your concerns about the budget deficit. According to the sectoral balances equation, all 3 sectors combined have to net to 0. If the government deficits equals the net surplus of the nongovernment sector. Then vice-versa is also true, the governmetn surplus equals the net deficit of the nongovernment sector. (S-I)+(G-T)+(X-M)=0 Lets say the government is running a positive net of 100 dollars and exports bring in a net 120 dollars. We don't know the private sector balance. It would be -100 plus 120 plus X = 0. The private sector would have to be running a negative 20 dollars. And also, since unemployment is a macroeconomic and inherently monetary phenomenon (taxation creating unemployment of money paying jobs) – how the hell can Argentina achieve full employment, when the government is running the WRONG VERTICAL TRANSACTIONS – making the net in the private sector negative, instead of positive. How is Argentina supposed to cover its GDP output gap without the government running the appropriate deficits?

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