Posts Tagged ‘inflation’

What started as a police strike in Cordoba has spread to other cities in Argentina. Looting, rioting, and property destruction, oh my!

The police in Cordoba were basically broke and waiting to get paid. So they told the government that they refused to go on duty until the issue was resolved. Scumbags, seeking their window of opportunity, began to steal whatever was not nailed down or on fire. Store owners banded up in armed watches in what appeared to be scenes from a zombie apocalypse movie. Several losers were shot and killed.

Then other areas decided that they were missing out on the fun.

At last count, 17 out of the 23 provinces in Argentina have been experiencing similar looting shenanigans, as they people have learned that the government is broke, inept, and cannot maintain its monopoly of force over its subjects. It’s amazing it took this long.

The clueless Kirchner government blames the looting as being a planned product of the political opposition. No, it can’t have anything to do with the fact that they have inflated their currency beyond worthlessness so now the police whom they pay to protect them can no longer earn a living wage. This is how you buy yourself an army of organized, trained, militarized, armed enemies. This is why inflation is in the Official List of Bad Ideas (TM).

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On the 14th of May, the Dolar Blue reached 100% higher than the official Argentine Peso exchange rate. The official rate of 5.22 Pesos/USD was dwarfed by the black-market rate of 10.45 Pesos/USD. It has since scaled back a bit to 9.4 as of writing.

What does this mean?

1. Argentina lies.

2. If you go on vacation in Argentina with US Dollars and change them through Arbolitos, you can have your vacation at half price. Party like a Rock Star.

Other examples abound. I have a travel agent in Argentina who plays the arbitrage between currencies, and I can save hundreds of dollars by booking flights through him if I pay in USD (we split the difference). He’s happy, I’m happy. This summer after I visit my mother in the USA, I will fly from Chicago to Indonesia, and then back again, for about USD$1800 round trip. Thanks, Kristina!

What does this mean for Argentina’s future?

1. They will devalue soon.

2. They will devalue soon.

3. They will devalue soon.

4. Argies are all using USD anyways despite the currency controls.

There’s no way around it. They will have to stop forcing people to go by an exchange rate that is twice as crappy as what folks are trading with now, and the only politically “viable” way to do it is to rob those who have saved in Pesos by chopping their currency off at the knees. Look for Chavez-style revaluation in the very near future.

This morning, Bitcoin topped $100 for the first time. Will it last? Nobody knows, but it’s definitely a sign of its growing popularity. Its latest rise has certainly attracted investors and technology innovators who are making tools for greater accessibility and usability, which only helps add to its popularity and usefulness.

Who’d have thought that in a world where every government is racing to the bottom of the barrel through currency inflation, a small opensource project to create a digital currency would experience explosive hyperdeflation? That’s what happens when you remove government meddling from the picture.

Go, go, mighty Bitcoin!

 

bitcoin

“No big deal with inflation, I grew up in a country with 70%/80% inflation” ~Pepe Mujica

As it is often said, when Argentina gets sick, Uruguay catches a cold. It’s become quite evident over the past couple of years as Uruguay has suffered from Argentina’s inflation.

Not to worry, though, because the Supermen of Central Planning (TM) are on their way to fix it.

““There’s no big deal with inflation, it can be reined in and we are going to fix it. I grew up in a country with 70% and 80% inflation,” says Pepito. This statement lends yet more evidence to the fact that he was not “of the poor and for the poor” as the character he has invented for himself portrays. Inflation hits the poor the worst. I have often wondered how Uruguayans can afford to feed themselves, and the situation is getting worse for them through inflation.

According the the Supermen of Central Planning: Gabriel Frugoni, Jeronimo Roca, and Pedro Buonomo (from the Planning and Budget Office) say that “the main challenge for the Uruguayan economy is “competitiveness” because of the depreciation of the US dollar and strength of the Uruguayan Peso and its impact on non commodity exports with added value.”

Some solutions to this problem might be: reduce import taxes, simplify import/export procedures, and eliminate import monopolies.

The official solution: “drastic cuts in outlays or an increase in taxes” according to Andres Masoller, head of the Macroeconomic Department at the Ministerio de Economia y Finanzas, after declaring Uruguay’s fiscal situation to be “delicate.” 24 hours later he recanted, denying that any form of adjustment is necessary to constrain Uruguay’s growing budget outlays, explaining that “this does not imply a serious situation,” despite an 8.7% official (ie: low estimate) inflation rate and a budget deficit which looms over their heads as 2.8% of their GDP.

That’s in addition to a system with 60% import duty, 22% VAT, BPS, wealth taxes, land taxes, city taxes, and other miscellany which pretty much guarantees that 100% of every peso spent in Uruguay is eaten up by the government.

Another offered solution: higher taxes on companies’ profits and luxury goods. As if businesses in Uruguay can even make a profit if they follow the law to the letter. And luxury goods? EVERYTHING is a luxury good in Uruguay because nothing is made there beyond sad matchstick furniture and leaky-roof housing.

And the icing on the cake: “to keep advancing in wealth distribution” because that will certainly bring money and competitiveness to Uruguay. Because clearly it worked great for Lenin, Stalin, Adolf, Mao, Pol Pot, Kim Il Sung, Kim Jong Il, and the rest of the Crazy Brigade.

So long, Uruguay.

You can read more about this stuff here.

Argentina has another nail in its coffin. Price controls in all supermarkets, to be active for 2 months. How much you bet that store shelves start looking empty within a week or two? Or less?

We remind the reader that price controls have never worked. Ever. Throughout all known history. Simply because they are incompatible with simple mathematical and physical reality. And each and every time they have been tried, they end up in shortages. Look no further for a recent example than the glorious Bolivarian revolution in Venezuela to see how this plays out.

“This time will be different!” they think. Well, they can’t really get honest information anymore because they tend to arrest those who tell the truth about how printing too much money results in the loss of value and credibility.

I’ve gone past the point where I wonder if they really believe that they are doing the right thing, and now it’s clear that they know they are destroying their country, and don’t care. And the Argentine people will cart Kristina through the streets in her golden chariot, cheering as she brings the whole place down on their heads.

Read more here.

Also interesting commentary on ZeroHedge, here.

Thanks to SustainableBob for the heads-up.

According to this article, Paraguay’s Banco Central recently increased its reserves from 33.8 to 426.5 million dollars (nearly 400 million more) worth of gold to expand their precious metal reserves and diversify from the US dollar.

Rafael Lara, a director of the Banco Central, explains, “We aim to diversify our assets with currencies which provide no risk to the parent bank, and also because Dollar investments are kept close to 0% interest, a trend which will continue until the United States decides to withdraw stimulus to its economy, which markets predict will not happen until 2015.”

According to this announcement, the Ministry of Economy and Finance and the Association of Uruguayan Supermarkets are putting a freeze on prices for over 200 supermarket products, in more than 300 stores, “in order to fight inflation.” Not only will the prices be frozen but they will be discounted 10%.

Our old friend Lorenzo, who scared off just about all the big fish from investing in Uruguay with his proposal and subsequent law to tax foreign holdings of UY residents, now thinks he can fix the problem with price controls. Well, it’s not just his idea; it’s the Association of Uruguayan Supermarkets too. They are “volunteering” to the price freeze. Why, who knows. Probably a political stunt. If they can afford to freeze prices *and* discount them, maybe they’ve been doing a bit of scalping. I’ve suspected this for a while.

Let’s see… every single time, ever, in all of recorded history, whenever price controls are enacted, that creates shortages of those goods and hoarding by those who have them. Why sell when the government forces you to do it at a loss? Those products then suddenly find themselves missing and/or not produced in the first place.

I have a prediction, based on this evidence from all of recorded history: those 200+ items will simply vanish from supermarket shelves and not be replaced. Meanwhile whoever actually produces them will either fill warehouses with unsold merchandise, or just stop production.

I also have a better suggestion to fight inflation: stop inflating the currency supply. All it takes is to do nothing, which Uruguayans are experts at. Doing nothing requires no employees, no printing press, no ledger entries.

I have been wondering for a long time how Uruguayans can afford to feed themselves as these crazy inflated prices. Now we see firsthand. And I don’t think it’s lack of material– there have been absurd prices on things that are sourced and made in-country. My opinion as to the price absurdity: Uruguayan greed. Really there’s no need to charge US$5 for 100 grams of cheese when it’s made in your backyard. Or $5 for a bag of potato chips which contains maybe 5 potatoes which cost a whopping 10 cents apiece from field to fryer?

Thanks to GermanBob for the link.