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Guest Post: The Template That Nobody Is Watching
Submitted by Martin Sibileau of A View from the Trenches blog,
Deposits can not only fall driven by fear, but also by greed. This is the case in 2013 in Argentina, a likely template for the US.
It is hard to make sense of the markets these days. For instance, gold showed no support while the geopolitical situation in Asia deteriorated, Japan embarked in the mother of all monetization programs, and a member nation of what is supposed to be a monetary union was imposed controls on the movement of capital. Or take the case of the Euro, which jumped from $1.2750 to $1.2950 on the day of one of the most confusing and embarrassing press conferences the president of its central bank ever gave.
However, in a faraway land, where there is no shadow banking, leverage or even capital markets, economic fundamentals still hold, which and can help us, inhabitants of the developed world, visualize a dynamics lost in the shelves of our collective memory. The land I am referring to is Argentina, but not Argentina of 2001. Today, I want to write about Argentina of 2013, and no, I will not discuss their legal battles with Mr. Singer.
Introduction
The topic I want to bring your attention to refers to an earlier article titled “What causes hyperinflations and why we have not seen one yet” (December 18th, 2012). In it, I drew a few conclusions; the most relevant of which was that high inflation and high nominal interest rates are not incompatible, but on the contrary…they go together: There cannot be hyperinflation without high nominal interest rates. The article suggested that high interest rates are the product of a collapse in confidence, represented by a serious shrinkage of the deposit base in a currency jurisdiction. But the article was not exhaustive. It was limited to pointing out fear of confiscation, as the driver behind the collapse in confidence. This will be the driver behind the Euro zone break up. But there is another driver and Argentina of 2013 may be a template for the US. Bear with me…
Fear and greed
When human beings act/decide/choose, they face a risk/return trade off. When choosing whether or not to leave their savings deposited in a bank, indeed their decision can be driven by fears of confiscation. In other words, at a given return (almost 0% nominally and negative in real terms these days), if risk is perceived as too high, deposits will decrease or at best and at the margin, not increase. That was the scenario contemplated in my earlier article.
The most catastrophic example of the fear scenario is the monetary developments at the fall of the Roman Empire, when depositors took their monies and dug holes in the backyards of abbeys to hide them from either the tax man or barbarian hordes. However, the earliest documented example (by Isocrates; discussed by Prof. J. Huerta de Soto in his great book “Money, Bank Credit and Economic Cycles”) of this scenario dates back to 393BC and took place in Athens, triggered by the war with Sparta and the victory at Thebes, when Passio, an Athenian banker could no longer hide the insolvency of his bank (Demosthenes seems to indicate that Passio had a leverage ratio of approx. 5 to 1). He was not alone. A general run also against the banks of Timodemus, Sosynomus and Aristolochus ensued and it resulted in a deposit freeze that lasted 10 years (ref. Bogaert, Banques et banquiers dans les cités grecques). Those who feared first, feared best.
Fast forwarding some 2,406 years to 2013, what I missed in my earlier article (although it was implied in subsequent ones: i.e. on gold manipulation) is the “return” or greed component of the decision to shrink deposits. By this I mean that, for a given, known and manageable risk, if the return is perceived as too low, the deposit base can also shrink.
The perception of a low return will be shaped in relative terms. If there is an alternative to placing savings in a chequing account, for same or lower risk, the deposit base will shrink. In the developed world, courtesy of the creation of fiat gold and the volatility it generated around the price of the metal, such alternative is still non-existent. This was the smartest move of central bankers. But with the Cyprus event and others to come, without a Plan B, even this volatility can be ignored in favour of a longer term view on gold.
Argentina 2013
An example of falling deposits driven by greed rather than fear is Argentina in 2013. Depositors there learned the “fear lesson” already 12 years ago and for that reason, today a US dollar under the mattress is always worth more than a US dollar deposited in a bank. But the story didn’t stop there. Later on, as it became increasingly evident that the confiscation by the government had not ended with the default of 2002, the US dollar market saw another segmentation. As the government competed with the public to source US dollars (to repay whatever was still left outstanding on their debt) and those dollars were out of the system, it decided to prohibit access to them in open markets. The repression began in earnest about a year and a half ago. For that “national and strategic” cause, even US dollar sniffing dogs were recruited to search for any US dollar bills, out of the system (watch here and here)
Since then, the market broke and there’s the official US dollar price, where of course you find no sellers, and the market price (for an unknown reason, called the “blue” market). The graph below (source: Reuters/La Nación) does not need additional comments; it is self-explanatory. Today, while an official US dollar is worth about 5,15 pesos, the market demands about 8,50 pesos, or a 2/3rds premium.

So far, you will be asking yourselves how this can be a template for the US. And you would be right: The gold market is still one and the US government will never have to compete with the public to source physical gold to repay its debt, which is denominated in US dollars. But there’s more to it..
Why it can be a template
But let me get back to my initial point: Deposits can also fall driven by greed, rather than fear. In Argentina of 2013, deposits in pesos are now starting to contract exponentially, not driven by fear but by greed. Why? Argentines observe the escalation in the price of the US dollar bill outside the system (+25% YTD) vs. the interest paid on peso denominated deposits (-10% in real terms) or stocks (+18.5% nominally), and correctly figure out that they are better off with a king-size mattress than a bank account. Now, that to me is likely to be a template of what may happen in the US, once the market for fiat gold collapses. Here’s why: If the fiat gold market broke in a run for physical gold, the credit multiplier on paper gold would be crushed and from that moment onward depositors in US dollars all over the world would see the performance of gold as a benchmark against US dollar deposits, just like Argentines today regard US dollar bills as a benchmark against their peso deposits. This is every central banker’s biggest nightmare: An asset whose price shapes inflation expectations.
The likely outcome of this would be an initial fall in USD deposits and a rise in interest rates, as the USD unsecured funding market would dry. Following this, the Fed, just like I am expecting the central bank of Argentina to do, would be dragged into a deficit (I am not going to explain here the mechanics of the deficit of a central bank. The reader may want to see my last article on hyperinflation, mentioned above).
As Argentina is at the gates of a new hyperinflationary process, it would be wise to follow it closely. It is a template. There are two conclusions that come to mind:
Conclusion No.1 : The Fed/US government would be better off not confiscating gold
Counter intuitively and contrary to the belief of the gold bug community, the US government would have every motive NOT to confiscate gold, for in so doing, they would trigger a run for physical gold and lose every leverage they have to suppress its price. This conclusion should hold even if a run for physical gold took place for other reasons. Their best move is to keep the suppression of the price of gold via fiat gold as long as possible.
Conclusion No. 2: The Fed would be more pressed than Argentina’s central bank to run a deficit
With the peso as a local currency, the pension funds nationalized, the absence of shadow banking and capital markets, if deposits in pesos drop, the central bank of Argentina does not worry about systemic contagion. As nobody there relies on the banking system to fund their businesses, the drop in deposits would likely end up affecting the profitability of the banks, with a high probability of seeing a complete nationalization of deposits.
The Fed however would be multiple times more pressed to intervene. Its liabilities affect credit and commodity markets worldwide, the pension and money market funds would be at the risk of collapsing. The high leverage of the shadow system would be too much. Therefore, the Fed would have to subsidize not just the US but the global banking system, to maintain US dollar deposits as a competitive alternative to gold worldwide. (Once more, to see how this would take place, please see this link)
Why I disagree with Martin Feldstein
Continuing with the topic of rising interest rate, in this recent article (link), Martin Feldstein expressed his concerns on the subject. Unfortunately, he does not explain how he sees that rise being triggered. He simply begins with “When interest rates rise…”. Unlike him, I have been explicit at least since December 2011: To me, the most likely driver is a wave of corporate defaults coming from the Euro zone, forcing the Fed to become the lender of last resort (in fact, they already are) and triggering a repudiation in US Treasuries. As a consequence, the repudiation of US Treasuries would further spark the fall of the money market and probably that of a commodity market clearinghouse. In this context, the price of gold would not fall as Mr. Feldstein predicts.
In my scenario, before (i.e. independently of) the rise in rates, credit spreads would rise as defaults increase. Markets would realize that the Fed is no longer in control and that the transfer of losses to the public sector are no longer bearable and the Fed would be forced to buy any US Treasury the market sells.
Martin Feldstein’s story has the opposite narrative thread. According to him, rates will rise and defaults will follow. In his words: “…Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall…”
How does Mr. Feldstein expect that rates to rise? Not because the Fed raises them, but because inflation expectations would drive nominal rates higher: “…If inflation turns out to be higher (a very likely outcome of the Fed’s recent policy), the interest rate on long-term bonds could be correspondingly higher…”
Mr. Feldstein omits to tell us what he thinks would cause inflation to be higher than the 2% targeted by the Fed, but my guess is that he has the mainstream economics model in his mind, whereby as the output gap decreases, prices increase. I will have more to say about such models in subsequent letters, but for today, let me end with this: There is no such a thing as an output gap. The notion of its existence is an ad-hoc mental tool, which dismisses the role of the price system in allocating resources.
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The MF Global template, the Cyprus template, or the Icelandic template. The people either choose or allow the template used in their locale.
It may not be the selling of US bonds that causes gold to run.
With Cyprus, we've had a short peek behind the curtain and it does not look good for asset holders in the financial system.
Put another way: look not to 1933. Look to 1980.
Interest rates were through the roof when gold peaked in 1980. That was during a fiat currency regime.
The time is nigh for the great refinancing of the uberclass. Right after they collect our taxes one last time.
I don't know that the current crop of "leadship" is necessarily smart enough not to shit in their own punch bowl.
But if they move to openly confiscate gold in the US, then the rest of the world's central banks (and even the IMF) would look to diversify concentration risk away from the NY FED, and the house of cards would collapse.
I despise TPTB as much as the next guy (maybe more) but it looks like MF Global clients will end up getting 90+% of their money back. Just sayin'
Prior proposals were for the investors to get a portion of the "cash value" of their accounts back - many accounts were physical metal holdings.
It will be interesting to see if any such settlement proposal is similarly for cash value or the return of their actual property.
What about the AR-15 template?! hujel
Slovenia on deck,eom.
Painful to read. Really hideous, poorly structured, pointless, inane.
C'mon, buzz, there's gotta be a pony in there somewhere!
I want a pony.
Somewhat similar to your comment. Criticism is easy; refutation takes time and deliberation.
Painful to read. Really hideous, poorly structured, pointless, inane.
That is correct. Another confirmation that all these bloggers reproduced here produce nothing but bullshit.
Feldstein is, of course, right. The reason why the interest rates will go higher is quite simple: the economy will start improving sooner or later.
oh, this trend is just starting, and oh i like it!
barter, cash, and oh so interesting-starve the beast.
power to the people-use it.
How many out there think those high unemployment rates mean people are sitting on their thumbs? The economy, the REAL economy lies just beneath the thin veneer of this centrally planned monstrosity. Fuck them and their fiat bs inflated beast.
Lots of positive reference to gold and negative to the US Dollar.
Chart below appears to show the opposite. That being said, lots of upset gold investors - price continues sideways/down.
http://bullandbearmash.com/chart/weeklies-spot-gold-diverges-dollar-doll...
Time will tell.
You should always be looking at volume of trade besides the price. Price alone tells you little.
If your time horizon is only a few months then yes there are some upset gold "investors". However, if you are a person like myself who swaps out fiat for money then this sideways to downward action is looked at like an opportunity.
Everything will be fine with the dollar ... until it isn't.
It you are supposed to be the new Robotrader you've got some polishing up to do.
"It you"?
Go long ES levered X100. If I'm wrong, we are all fucked anyways.
The basis of the storyline is the ying-yang of fear and greed, when really they are just two sides of the same coin.
That being said, Argentina should be used more often as a state unfettered by economic sense or anything but the next budget, bludgeoning the population into meeting the last election promise. Argentina was using bank deposit confiscation, among other techniques, before it became cool.
Political pandering to interest groups is the lesson of Argentina, a model that pertains just as well to the EZ and the US. "Fairness" abounds until the money runs out. The US is testing the immovable object of finite wealth with the irresistable force of unlimited money. So, I guess we're so much smarter here.
It may be that the market is currently paying no attention to words, since no sense can be made from them.
The better template is Japan. In a desperate bid to re-ignite "growth", which is really just inflation, we may be witnessing the early stages of Japan going Weimar Republic.
The value of the Yen skyrocketed because Japan was seen as a safe haven from the devaluation of other global currencies. Yes the move was insane considering the state of the Japanese economy, but it happened. Now the opposite is going on.
The Yen is plummeting is value, if the trend keeps up the Yen may drop out of control. Although there will be a great export benefit, raw material costs will make it virtualy impossible to produce anything for a profit. Sure Japanese production will become more attractive, and for a short time the economy may look like it is on a path to growth. But with virtually no resources, how will Japan control commodity inflation?
You can also forget about foreign production as labor costs in Japanese owned US factories will skyrocket. You can forget about planned massive expansion of Japanese auto factories in the US.
I would not want to be in Japan right now.
Is this right? One step process of GDP creation: under-report CPI. We don't even need LSAP for that.
I just came through Narita two days ago and the folks lined up at the shops like flies on you know what. The cheaper yen has the tourists in a feeding frenzy.
Japan is now running Debt at 250% to GNP (Gross National Product)
To service this Debt, Japan has to come up with 25% of GNP each and every Year!
That makes Japan the big PINK GOZILLA
add to that TEPCO and you can say
Good Night FUKUSHIMA !
wr;)
depositors in US dollars all over the world would see the performance of gold as a benchmark against US dollar deposits,
And this is why Gold cannot be allowed rise in price. There has always been a direct correlation between gold/dollar.
In the mind of anyone who holds dollars, if gold increases by 50% their dollar is worth 50% less.
If it should rise 100%....
This is a good point. American depositors tend to watch gold prices, which I believe have already priced in a dollar collapse of 50%, however, if that collapse doesn't happen, gold should collapse 50% in response. However, I think the dollar will continue to collapse against gold as Bernanke has no choice but to print more money to support the ever growing dependent class of Americans
A large majority of the Ignorati are gonna be blind-sided should Au/Ag start skyrocketing.
Obviously, the price of gold is low in future dollars, but in present dollars, I still think it is high, maybe double or triple priced. Has a lot in common with the housing bubble
I'm guessing that 2nd grade was the toughest 3 years of your life. 'rithmetic's a bitch, ain't it....
LOL, mean bastard you is !!!
I think war will happen quicker.
The idea of hyperinflation with low interest rates is totally contradicting logic and history. Martin is correct.
Consider this: There is too much debt to GDP = There are too many finanical assets in relation to present goods.
Financial assets = present value of future cash flows.
Present goods are goods and services and commodities evidently which are undiscounted.
The relative price of present goods and future cash flows is altered by the treasuries yield.
The higher the treasuries yield the lower the present value of the asset (Tsys) backing the currency (the USD).
If we had a XIX century scottish banking system all the assets backing the currency would be good bills self-liquidating that is proto-present goods.
The US currency has been financialized both at teh FEd and in the commerical banking system that is many assets which are long duration assets and the same in teh commercial banking system. A good currency is a currency issued against gold (present goods) and account receivable or good bills (proto-present good)
The extension of maturity at the BOJ means that the Yen is getting financialized too.
A currency issued only against commodity money and good bills of 90 days maturity financing teh real economic activity is a currency which is issue in relation to present goods. If it is redeemable, the market governs interest rates.
I believe a loss of faith in the Yen will lead to a loss of faith in all Western currencies. Waiting for Bernanke to talk about the Yen. These constant rumors of trimming QE do not convince me that its going to happen. The more likely scenario is that Bernanke doubles the QE to $170 billion a month or a new social program is released so that Social Security or some other big entitlement continues to grow. One thing is for sure, if anything touches SS, it will touch the stock market because as soon as old people cannot depend on SS they will be forced to tap their 401k's and once they do that, the market will start to fall, be it bonds or stocks, which most own in a 60/40 ratio respectively
A major dislocation in JPY will cause flight to USD's and thereby create a ripple in US markets. At this point, the system of paper asset valuation is so unstable (in my view) that any ripple carries the risk of an uncontrolled oscillation resulting in market failures.
At the same time, global hyperinflation isn't something that's going to be taken lightly by voters. Its politically inpalatable. Therefore, politicians must keep a slow drip of inflation if they want to keep things under control. All inflation has to be coupled with increased handouts. As in Weimar and Zimbabwe, no true price inflation can exist until the government hands out more free money. It already does to the tune of $1-2 trillion per year in SSI/Medicare/etc, but these things are contained. I think right now we are waiting on the government to make its next move. Cutting benefits (handouts) is deflationary. Increasing benefits is inflationary. I lean toward an inflationary move, not deflationary, but at this point, its up to the gov't to choose, not the markets, since the markets are completely dependent on gov't money
Nice post. If only there was someone within 500 miles of Washington DC who even came close to understanding this.
I wrote on another (stupid) blog: "The Japanese are going to double the number of yen in the next 18 months. They must be so excited! They're all going to be TWICE AS RICH! (little squeaky voice asks "...or does it mean they'll be HALF as rich?)
I like this point: "we cannot have hyperinflation without rising interest rates" (paraphrased)
Exactly. Prices cannot rise without buyers. That means, for hyperinflation to occur, we would have to see increases in wages or increases in some other form of income - possibly interest rates. Until we see that, prices can try to rise, but they will constantly meet a demand deficit road block. I think what we are seeing is mitigated deflation. Wage deflation, interest rate deflation and we would be seeing stock price deflation, were it not for the fact that the market is the direct recipient of newly printed money. That money must leave the capital markets and move into the real markets before inflation occurs. It will not, at least until the political scenario changes. Right now, the palatable result for the political class is continued stock inflation coupled with wage deflation. Until the political class is deposed, this scenario will continue
The price of gasoline has been going up even as the demand is falling. Thus, the prices of even necessary commodities can rise as demand falls because the cost of producing it has risen. Wages, equipment, and environmental regulation, along with monetary devaluation all add to cost increases.
I don't think interest rates will rise simply because there is an unlimited amount of U.S. dollar liquidity. There is zero fear in paper asset U.S. dollar investments -- stocks, bonds, money market accounts. The only thing that will drive up interest rates in the U.S. is fear, and I don't see it among liquid assets.
I said this two years ago. Inflation was already baked in. 40years worth. As we deflate some assets will try to rise some will fall. The ones rising will hit a wall and consumption will end and the product will be removed from the shelf.
This includes currency, equities, Apple billions, pension funds, wages, land, etc.
All of theses assets are being valued in unrealistic currency manipulation and not by price discovery.
Somewhere out there there is a balance point. and that point is a lot lower then today's prices reflect.
At some point the world is going to gum up and stop then the reset in wages will follows.
Wages will never rise under the current political paradigm. The falsehood of the market determining wages assumes political forces get out of the way of rising wages. However, political forces work to suppress wages constantly. The culture of "pull yourself up by your bootstraps" and the fallacy of the "pursuit of happiness" are cultural ideas created to get workers to accept low wages. Open border policies further depress wages and tax structures punish high earners, thus decreasing motivation to excel. Mostly though, it is interest groups which work to keep a high-walled garden around the industrial (executive) class that keeps new entrants out. Keep in mind, that the smaller the executive class becomes, the higher the incomes for its members is because they are working with a fixed pool of assets. If ten guys are in a room deciding how to split 10 million dollars, they can either split it $1 million a piece or they can kick 5 guys out and get $2 million a piece
Dollar "blue" is short for blue chip swap, whereby one can buy a blue chip domestic equity on the local exchange in the local currency, and sell it in an international exchange for foreign currency. A more market-based exchange rate and a mechanism used to GET YOUR MONEY OUT.
Sibeleau keeps looking under his bed for hyperinflation when he should be looking at the metal monster @ end of his driveway for deflation and system collapse.
What a dollar is proxy for matters, right now it is a proxy for fuel waste. What happens when dollars become a proxy for that last gallon of gasoline ... for conservation, instead of waste?
Right! You won't see dollars and you won't see any gasoline, either. There won't be enough dollars to keep gasoline on the market, every dollar will be hoarded in the event that gallon of gasoline is a desperate necessity / miraculously appears.
While those who own meaningful amounts of gold represent a small, elite group, those who buy gasoline around the world every day are innumerable, hundreds of millions. The physical relationship that matters is money vs. gasoline: priced in fuel, dollars have more worth today than ever.
The fuel- money relationship is more important than the relationship between cash in hand and future money (interest rates) ... and is why central bank monetary policy has become irrelevant.
Unfortunately for monetarists, fuel is a poor medium of exchange: it is bulky, hard to transport and store, it's dangerous and evanescant ... that is, nothing can gained from the fuel unless it is destroyed, nothing of any worth is gained from the fuel by its destruction, either. It is like burning every dollar spent, the use of fuel is actually non-use, the process is inherently bankrupting, it is the reason why Argentina fails along with Japan and Greece ... why the US and the rest of the so-called 'modern' countries will fall alongside.
Our money gives us incentives to waste, that is money's purpose. Anyone who claims otherwise does not understand money or the world he or she lives in. Demands for greater purchasing power are demands for more fuel to waste at the same low cost as in a past with a large energy surplus. This demand is impossible to meet, the physics do not allow it, the surpluses have been long ago extinguished. What remains are various forms of rationing ... in most countries is simple bankruptcy, inability to meet the cost of debt: conservation by other means.
BTW: nobody with any amount of sense will burn up good gold for fun ... or trade good gold for crude that is also burned up for fun. Burning up for fun is the 'why' of paper money.
From this, one might leap to cognition that petroleum is a keystone to the power to control others; even to domiate the world. A ruling-class wet-dream.
Russian chem/scientist Mendeleev [re Periodic Table of Elements] realized that in 1860 during visit to Pennsylvania/Ohio oil fields. Rockefeller saw it by the 1880s and realized his dream to apply a chokehold on supply ["The oil business is mine."] Simultaneously, Dieterman and The Crown joined via Royal Dutch Shell to share Rocky's dream.
Another key to understanding how control of resources is vital to survival and especially dreams of dominion, look to the hitory of the Haklyuts of England. They began the first compendium of the world's resources in late 1500's and it is ongoing today. [ Curious that the British national Neal Cunningham, who was reported murdered in China recently, was working on assignment for the Haklyut interests.].
Argentina cannot be a template for the US. Whatever happens to the dollar will impact the whole world triggering a cascade of actions and reactions which make the future completely unknowable. It is simply too complex for anyone to guess corectly the unlimited interactions of a large number of variables.
But we can make a few safe bets: The Euro is not viable as it is so either the political structure of Europe changes or the Euro is history. Japan has dug a rather deep hole from which a shrinking population will make the exit painful but the solution is rather simple: Cut purchasing power in half... which is exactly what will happen one way or another. The Chinese predicament is more complex: Can the country survive zero growth? Who knows? Other countries are worse off still: Egypt soon enough will not be able to feed itself. Then what? Starvation... around the Suez canal? Unlikely.
Then there is the interaction of these factors: Which ones take place first? Do they accelerate or slow down the others? What black swans can be expected in-between? What are the economic and political weak points of the system? What are the consequences to avoid at all cost and the aces governments still have up their sleeves? At what stage does a war becomes more attractive than facing the music? Soon enough the butterfly effect gives room to the cascade of history. We've just witnessed the first two; Cyprus and the Yen. From now on, things will speed up. At the beginning the wisest will protect their money better but it won't last for even they cannot predict what will happen beyond the very near future.
Reduce the decision to the least amount of conjectures necessary for your bet not not lose money.
I would agree with that plus diversification but that's for "normal" circumstances. What if ALL bets lose money? Some more others less and you cannot tell the ones from the others. Just one example: Investing in Won may be a good bet now unless there is a war in which case it becomes a terrible one... in the short term but maybe once again a good one in the longer term following reunification...
What I do not understand is how the Fed can ever lose control or rates. People can take every single bit of their money out of the banks and the banks will still have as much money as they want because the Fed gives the banks and the government infinite amounts of fiat for free. There are no apparent financial rules.
And obviously this leads to the Federal Reserve Note and any money behind it becoming a joke... but the joke is the only game in town... so everyone laughs.
The thought that at some point the market will be forced to raise rates is ludicrus. That would only happen if there was some limit on the amount of money and it became scarce for the banks or precious. It is neither currently.
Personally it was easy to see this going downhill when money stopped representing value (and in an M&A environment this would imply a payback model) and simply because a tool to generate income (in an M&A environment this means that payback is irrelevant and all that is important is covering interest and generating income from debt or inflation created capital gains).
It's a nice article on black market rates -v- manipulated market rates that plague 3rd world and developing nations, but not much else to recommend it. One glaring error is the supposed 0% return on deposits. That should be negative return on deposits considering inflation and risks.
It reads as though it was written sometime before 2008, mentioning none of the lessons that we take for granted. Like the meaninglessness of missing or hitting the Fed's target inflation rate. What's the point of calculating the basket of goods and services that serve as an indicator, when it is constantly changed to massage the outcome, and ignores such glaring modern truths such as bankruptcy stocks and retailers on sale 365 days a year, to favour cash flow in lieu of profit?
It is grossly optimistic to use economic models to gauge the current crises. They belong in the classroom, where you can making nice little forecasts and make adjustments to suit without thinking about the consequences of their effects to millions of people. There's no such thing as ceteris paribus in real life.
Japan is, for want of a better word, fucked. And so are we all, especially anyone still delusional enough to have faith in fiat.
Uhh? I guess you missed the part where it says that the return on the deposits is -10% in real terms (i.e. adjusted for inflation).
Dude....did you really read the post???
Apparently not. -10% return refers to the Peso, while the 0% return refers to the bank deposits in the US and the West where cetral banks have intervened. But nice catch. Dude.
Might be mistaken, but didn't notice the parenthesis (..and negative in real terms these days) on my earlier reading, hence the post.
The author is mistaken in claiming that 'deposits in pesos are now starting to contract exponentially.'
To the contrary, the central bank's latest statistical report shows that peso deposits are expanding at a 30% annual rate (page PAN-SER-2-3):
http://www.bcra.gov.ar/pdfs/estadistica/boldat201303.pdf
How the hell can you have 30% inflation, without the peso money supply growing at a roughly equivalent rate?
With basic facts like this wrong, how can you trust anything this guy writes?
I checked the link this guy gives in the article. It refers to private sector deposits with private sector estimations. Your link is to official stats. I am not too knowledgable but according to official stats too, inflation is seriously underreported and a dollar is worth 5.15 pesos.
Fed 'prints' money out of thin air, banks own fed, banks sell trillions in interest rate swaps, no disclosure on anything, fed controls interest rates, so interst rates are gonna do what for why?
The problem is the reaction of people to rumor. Financial firms and alternative media outlets have been trumpeting the coming economic crisis here in Argentina, in an effort to generate business (since there is, in general, a dirth of savings in the country to begin with). Everyday on my google ads, I get notices from a financial firm in Buenos Aires to protect my assets from the coming crisis (I live in Argentina). As a result, the people of Buenos Aires and Cordoba have been desperately seeking dollars because of fear of hyperinflation... not the reality... in fact, the prices of nothing have changed in this part of the country for the past 6 months... the most price stability Argentina has had for some time.
In general, though, the author of this article is correct. Government currency controls and attempts to ban dollar sales in the country have created a dollar shortfall for the people who want to save in dollars. As a result, the price of dollars has been increasing because of the shortage. There is a lesson in this for the Fed and the U.S. government, but they will not learn.
Also, the fact that Argentina has no Shadow banking system and no fear of systemic collapse are two reasons that I live here. I also live here because the people here have experience living under conditions of financial crisis and the economy (in the interior, not in Buenos Aires) is local and can function without the global financial system. The stores will still have food (it comes from 2 miles away and the farmers need their equipment repaired, clothes, and other necessities of life here in town), and nearly every product in the stores (with the exception of electronics) is made in Argentina, thanks to import tariffs.
Didn't the Argentinian Govt place a price freeze on certain goods? (Along with advertising ban(s)?) Under such conditions, prices aren't gonna move, but shelves will empty out!