Argentina - Leftism Collapsing Another Once Great Economy

Discussion in 'Too Hot for Swamp Gas' started by G8trGr8t, Jan 24, 2014.

  1. G8trGr8t
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    G8trGr8t Premium Member

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    First Venezuela, now Argentina, and Brazil is next. Leftist are collapsing some of the once most vibrant and resource rich economies of South America. All three of these countries were prospering and doing great under capitalism and all three have tremendous natural resources and all three are headed down the tubes.

    This could get real ugly and drag the entire world economy back into a recession. This could trigger the next black swan event if Argentina defaults, again, and drags Brazil down with it.

    http://www.theguardian.com/world/2014/jan/24/argentinian-peso-freefall-economic-crisis-deepens

    The peso is suffering its fastest fall since Argentina's 2002 economic collapse as dwindling reserves keep the central bank from trying to prop up the currency by intervening in the foreign exchange market.

    The 16 percent loss in the peso's official value against the dollar over Wednesday and Thursday could worsen the country's inflation, which is among the worst in Latin America, analysts said.

    The peso fell from 6.88 per dollar on Tuesday to 7.14 on Wednesday. By Thursday's close, it was at 8 to the dollar. On the black market, where Argentina's currency is even weaker, the peso dropped 6 percent Thursday to 13 per dollar.

    The sharp depreciation is likely due to a new government strategy of seeking a sudden devaluation instead of a gradual one, said Juan Pablo Ronderos of economic consulting firm abeceb.com.

    "There was a first sign of this change on Tuesday because the central bank didn't show up (to intervene) until midday, and on Wednesday and today it just disappeared from the market," Ronderos said. "The gradual devaluation wasn't working because the central bank kept on sacrificing lots of its reserves and it kept on being reflected on consumer prices."

    Analysts expect Argentina's inflation to reach more than 30 percent this year, the second highest rate in Latin America after Venezuela.

    "The sharp drop will aggravate inflation, although the impact may be mitigated by the fact that some imports will already be purchased at the much weaker black market exchange rate," Neil Shearing, chief emerging market economist at Capital Economics in London, said in a research note.

    "The bigger picture, though, is that the economic mismanagement of the past decade has once again pushed the country to the brink of a balance of payments crisis," Shearing wrote.

    Critics of the left-leaning government of President Cristina Kirchner blame economic problems on its higher spending on social programs, expansion of business regulation and nationalisation of some companies.

    http://www.theguardian.com/business...na-peso-new-crisis-emerging-market-currencies

    So what happens now? In Argentina, there is the prospect of capital flight, a sharp fall in the peso and higher inflation. In emerging markets more generally there is the prospect of contagion. Brazil, as Argentina's neighbour and a country already identified as one of the fragile five emerging markets (India, Indonesia, Turkey and South Africa are the others), looks most vulnerable.

    For the global economy, Argentina can be read one of two ways. Either it is a sign that the financial crisis of 2008 has a sting in the tail. Or it is the start of a new one.
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  2. G8trGr8t
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    watch the ten year note as the capital flees Brazil and Argentina today and next week. It was over 3 and now is under 2.8 as capital is seeking safety. This could lead to a rise in oil and gold as capital seeks safe haven in commodities and treasuires but is an excellent opportunity for the fed to discontinue their purchasing as there seems to be ample demand for safety right now.
  3. rivergator
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    rivergator Well-Known Member

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    I'm not sure how vibrant the economy has been before. Did it have a terrible collapse around 2000 which is why the new guys were voted in?
  4. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    Argentina had a pretty robust upward swing in most categories starting around 2002 (actually, quite a few central and south American countries did, a sort of equilibrium effect). Currency devaluation and subsequent inflation is a serious concern when you have a lot of strong, close countries with dissonant currencies and/or economic systems. That's part of the driving force behind the EU - ostensibly the stabilize that and mitigate the cascading effects of regional or national inflation.

    Most of the metrics for Argentina 2014 are significantly stronger than in 2000, though. I'd like to see some specific cause and effect rather than some partisan lip smacking.
  5. Gatorrick22
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    Gatorrick22 Well-Known Member

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    I hope Soros loses his a$$ in Brazil... But, the price of oil might save his bacon.
  6. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    That said, heavy government investment in commodity markets will always, always be an economy on the precipice of collapse. The same would be true of a "free market," but then of course that has less direct impact on inflation.

    But that's South America right now. Once they put together a continental free trade agreement, though, look out. Even Mexico will be priced out of largescale production.
  7. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    I don't really know much about Argentine politics, but it a appears that the same party has been in power since at least 2001. I mean, the current president is the wife of the last president.
  8. G8trGr8t
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    G8trGr8t Premium Member

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    yes it collapsed under the weight of massive public sector employment with higher than market rate salaries and benefits. post collapse, steps were taken to put the economy back on track but as soon as things started to turn the politicians decided they wanted to go greek again and put everybody and everything back on the public payroll to keep themselves in office. all in the name of eliminating income inequality. sound familiar?? once they started nationalizing industries the capital and knowledge required to run those industries fled the country. Country has incredibly rich resources but pisss poor management. Mexico has learned and is reversing their nationalization, Venezuela, Argentina, and Brazil are headed in opposite direction and their respective economies are reaping the benefits/costs of those decisions

    http://en.wikipedia.org/wiki/1998–2002_Argentine_great_depression

    Duhalde eventually stabilised the situation to a certain extent, and called for elections. On 25 May 2003, Néstor Kirchner took office as the new president. Kirchner kept Duhalde's Minister of Economy, Roberto Lavagna, in his post. Lavagna, a respected economist with centrist views, showed a considerable aptitude at managing the crisis, with the help of heterodox measures.

    The economic outlook was completely different from that of the 1990s; the devalued peso made Argentine exports cheap and competitive abroad and discouraged imports. In addition, the high price of soy in the international market produced massive amounts of foreign currency (with China becoming a major buyer of Argentina's soy products).

    The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and allocated large sums for social welfare, while controlling expenditure in other fields.[citation needed]

    The peso slowly rose, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned.

    The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from rising further, which would break the tax collection scheme (largely based on import taxes and royalties) and discourage further reindustrialisation. The central bank started rebuilding its dollar reserves.

    By December 2005, foreign currency reserves had reached US$28 billion (they were later reduced by the payment of the full debt to the IMF in January 2006 (2006-01)). The downside of this reserve accumulation strategy is that the dollars had to be bought with freshly issued pesos, which risked inflation. The central bank sterilized its purchases by selling Treasury letters. In this way the exchange rate stabilised near 3:1.

    [​IMG]
    [​IMG]

    President Néstor Kirchner and Economy Minister Roberto Lavagna discuss policy, August, 2004.
    The currency exchange issue was complicated by two mutually opposing factors: a sharp increase in imports since 2004 (which raised the demand for dollars), and the return of foreign investment (which brought fresh currency from abroad) after the successful restructuring of about three quarters of the external debt. The government set up controls and restrictions aimed at keeping short-term speculative investment from destabilising financial markets.

    Argentina's recovery suffered a minor setback in 2004 when rising industrial demand caused a short-lived energy crisis. Argentina managed to return to growth: GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007. Though wages averaged a 17% annual increase from 2002-2008(jumping 25% in the year to May 2008),[62] inflation ate away at these increases: 12.5% in 2005; 10% in 2006; nearly 15% in 2007 and over 20% during 2008.[citation needed] The government was accused of manipulating inflation statistics leading for example, The Economist magazine to turn to private sources instead.[63] This prompted the government to increase export tariffs and to pressure retailers into one price freeze after another in a bid to stabilize prices, so far with little effect.

    While unemployment has been considerably reduced (it hovered around 8.5% after 2006), Argentina has so far failed to reach an equitable distribution of income (the wealthiest 10% of the population receives 31 times more income than the poorest 10%). This level of inequality compares favorably to levels in most of Latin America.
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  9. Gatorrick22
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    Gatorrick22 Well-Known Member

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    All they need is Obama-nomics and any and all countries could fold... And chances are they have a Hugo Chavez type dictator now... implementing that jobs killing inflationary tactic.
  10. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    I'm not sure what you're saying here.
  11. Gatorrick22
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    Gatorrick22 Well-Known Member

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    Sure you do.
  12. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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  13. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    Really even before 2001.
  14. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    Well not party, but ideology. You'd be hard pressed to find an analog to U.S. conversatism in South America. The closest is social democracy here and there.
  15. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    Or anywhere else for that matter.
  16. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    Well, I think there are smatterings across Europe, but they tend to be very economically focused.
  17. Gatorrick22
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    Gatorrick22 Well-Known Member

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    Corruption transcends all borders... every country on Earth can be brought down by it.
  18. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    Yeah, with parlaimenatary systems you don't get the social & religious/economic/nationalist fusion. Plus libertarianism is almost non-existent anywhere else.
  19. orangeblueorangeblue
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    orangeblueorangeblue Well-Known Member

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    It's fair to say that classical liberalism is the global version of libertarianism. Given our country's birth it's not surprising that libertarianism is a largely American phenomenon. Most of the earliest European libertarians just moved to the U.S. anyway.
  20. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    I would assume you mean the that Lib Dem parties (i.e. the non-conservative, non-labor parties) of Europe are "classically liberal." I don't see them as really all that analogous to US libertarianism, but point taken.

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