[Puffer Fish]

Note that Argentina did not raise their rates by 97% but rather to 97% !

The Central Bank of Argentina raised its key interest rate Monday by six percentage points to 97% in an effort to tackle soaring inflation that has reached 30-year highs.

May 15, 2023


https://english.news.cn/20230516/0d69c0 ... 0be/c.html
https://www.cnn.com/2023/05/15/business ... ar%20highs.


Honestly, not that surprising this is happening in Argentina. They're had rampant inflation problems in their country's past history.

Argentina is one of the more prosperous nations in Latin America, much more like a "Second World" country than a "Third World".

When the level of inflation is so high, you have to let the interest rates match the inflation rate. It's too expensive for the government's Central Bank to try to artificially suppress interest rates at that point. It would just contribute to more inflation. So Argentina's Central Bank has pretty much given up, thrown in the towel, and is letting the country's interest rates fall where they may, dictated by the free market, which is going to be high in the presence of massive inflation.

Argentina's inflation rate was 94.8% for the year of 2022.

[Skynet]

When hyperinflation occurs, people loose trust in the currency. When people loose trust they convert any paycheck in to Dollar, Euro, Gold, Bitcoin...

Their only option is to introduce the Dollar as currency, because a lot of their exports like meat and soy beans are payed in Dollar.

[Puffer Fish]

Rising poverty grips Argentina as runaway inflation takes its toll, Debora Rey, AP News, September 27, 2023

"The portion of Argentines living in poverty reached 40.1% in the first six months of the year, according to figures released Wednesday by the government’s INDEC statistics agency. That is up from 39.2% in the second half of 2022."

"For much of the 20th century, Argentina showed a social mobility dynamic that gave rise to a large middle class and made the country stand out in the region. But the good times derailed, and poverty has remained firmly above 25% the last two decades"

[Steve_American]

Note that Argentina did not raise their rates by 97% but rather to 97% !

The Central Bank of Argentina raised its key interest rate Monday by six percentage points to 97% in an effort to tackle soaring inflation that has reached 30-year highs.

May 15, 2023


https://english.news.cn/20230516/0d69c0 ... 0be/c.html
https://www.cnn.com/2023/05/15/business ... ar%20highs.


Honestly, not that surprising this is happening in Argentina. They're had rampant inflation problems in their country's past history.

Argentina is one of the more prosperous nations in Latin America, much more like a "Second World" country than a "Third World".

When the level of inflation is so high, you have to let the interest rates match the inflation rate. It's too expensive for the government's Central Bank to try to artificially suppress interest rates at that point. It would just contribute to more inflation. So Argentina's Central Bank has pretty much given up, thrown in the towel, and is letting the country's interest rates fall where they may, dictated by the free market, which is going to be high in the presence of massive inflation.

Argentina's inflation rate was 94.8% for the year of 2022.

I didn't look to see what rate it was before this last raise.

I disagree with the title though. They didn't raise the rate to fight inflation. They did it to accommodate inflation. I say this because the high rate it was before the increase didn't stop the inflation, so why would they expect this increase to start stopping inflation?

I posted a thread with "Mosler" in the title, where he explains how Argentina is working. That is where & how raising interest rates is causing more inflation.

Mosler told their leaders years ago what was happening, and they said that they have no choice the IMF makes them raise rates. I also got the impression that they didn't believe him anyway. Just like Puffer_Fish doesn't believe me.
.

[Puffer Fish]

I disagree with the title though. They didn't raise the rate to fight inflation. They did it to accommodate inflation. I say this because the high rate it was before the increase didn't stop the inflation, so why would they expect this increase to start stopping inflation?

Maybe you are confused. Raising interest rates does not actually literally "fight" inflation. What it does do is help prevent more inflation. Because when a Central Bank lends out money to lower interest rates (or continue to keep interest rates down in the face of high inflation) it usually creates an inflationary effect.

I posted a thread with "Mosler" in the title, where he explains how Argentina is working. That is where & how raising interest rates is causing more inflation.

This is a little bit complicated to explain. Yes, raising interest rates in this situation was causing more inflation, but that does not mean that not raising interest rates would not have caused that same inflation. (That may sound paradoxical, but you will have to think about it)

Raising the interest rate (or rather allowing interest rates to go up) from 30% slowly to 100% increased the income going to creditors in other countries, which was being used to buy dollars and this drove down the value of Argentina's currency.

Some of this was just making sure that creditors would actually be paid back what they should be owed, without using inflation to pay the debt off and cheating the creditors. But part of it could also be the cycle of hyper-inflation caused by uncertainty. If lenders are not sure if inflation will continue to increase and lenders believe there is a risk to lending, then interest rates will go up.

There's not really any easy escape from this sort of situation, when a country gets in this situation. That is something many do not realise or understand. Economic policies come with trade-offs, and sometimes those policies can't solve an underlying problem.

If Argentina made it a policy to stop issuing more currency, and could somehow provide everyone with a guarantee that it would stick to that policy over the next few years, then inflation would come to a complete halt.
The problem though is Argentina does not have enough money, and is burdened with a big debt obligation.

What we are seeing in Argentina is what happens when a government (typically run by the Left) thinks they can pay off their debt through printing more money.

And anyone who makes an emergency loan to such a country (such as the IMF) is going to impose conditions, to make sure that loan will be repaid in full.

[Steve_American]

@Puffer Fish, did you watch the entire video by Mosler? I see no sign here that you did.

So, Lurkers, if he didn't watch it, you should.

This is because I'm no expert. And especially, I have almost no idea what Argentina's problems are, except that it owes a lot of dollars to foreigners like the IMF. Owing dollars means it can't pay its obligations with its fiat currency. It needs to get dollars somehow.

All I can say to you, Puffer_Fich, is you wrote, "Some of this was just making sure that creditors would actually be paid back what they should be owed, ..."
. . . Typically, raising interest rates doesn't change the rates of/on existing loans, If this is true in this case, then how does increasing interest rates help its creditors get paid with currency that has not lost value to inflation?
.

[Puffer Fish]

All I can say to you, Puffer_Fich, is you wrote, "Some of this was just making sure that creditors would actually be paid back what they should be owed, ..."
. . . Typically, raising interest rates doesn't change the rates of/on existing loans, If this is true in this case, then how does increasing interest rates help its creditors get paid with currency that has not lost value to inflation?
.

That is not true in the case of inflation.
I think part of the real issue is that we're not talking about one single loan, but the government has to continue to get new loans to pay for when the old loans become due. As a result, it ends up becoming analogous to a loan set at a variable interest rate. Sort of economically equivalent.

Aren't you the one who was claiming (in that other thread), even more than I was, that higher interest rates force the government to have to pay more to "rich" people who loaned the money to government?

[Steve_American]

That is not true in the case of inflation.
I think part of the real issue is that we're not talking about one single loan, but the government has to continue to get new loans to pay for when the old loans become due. As a result, it ends up becoming analogous to a loan set at a variable interest rate. Sort of economically equivalent.

Aren't you the one who was claiming (in that other thread), even more than I was, that higher interest rates force the government to have to pay more to "rich" people who loaned the money to government?

The lenders get higher interest rates if they keep lending.
Those who decide to stop lending see their old loans reduced in value.

Yes, I said that, that the well-off who loan money to the Gov. get higher interest payments and this can be inflationary. I also said that higher rates are an additional cost for corps or for their competition so they must or can charge more and this is obviously going to cause inflation.
.

[Puffer Fish]

Yes, I said that, that the well-off who loan money to the Gov. get higher interest payments and this can be inflationary.

You need to think about what you say, and try to look at the bigger picture of how all these things connect together.

How I see you thinking, it seems to involve piecemeal logic.

If you want government to lower rates, to be able to pay lower interest rates, what that really involves is the government-controlled Central Bank lending out that money for government to spend, rather than government borrowing it from the private sector.

That will cause all sorts of problems, and cause even more inflation.

If the Central Bank attempts to hold down interest rates when there is high inflation, it creates exponentially more inflation (creating more new inflation than it would have if inflation had been lower) It becomes a vicious cycle.

There's no way around it. The government can pay out more money for growing interest rates, and then print that additional money causing inflation. Or government can print money to buy that debt itself so it can pay lower interest rates.
Do you really think the second would cause less inflation?

[Steve_American]

You need to think about what you say, and try to look at the bigger picture of how all these things connect together.

How I see you thinking, it seems to involve piecemeal logic.

If you want government to lower rates, to be able to pay lower interest rates, what that really involves is the government-controlled Central Bank lending out that money for government to spend, rather than government borrowing it from the private sector.

That will cause all sorts of problems, and cause even more inflation.

If the Central Bank attempts to hold down interest rates when there is high inflation, it creates exponentially more inflation (creating more new inflation than it would have if inflation had been lower) It becomes a vicious cycle.

There's no way around it. The government can pay out more money for growing interest rates, and then print that additional money causing inflation. Or government can print money to buy that debt itself so it can pay lower interest rates.
Do you really think the second would cause less inflation?

Puffer_Fish, I have said many times and you keep ignoring it. IF there is unused labore and resources in the economy then deficit spending that the Fed mostly buys up, then there will be no inflation, unless it is caused by shortages or a spike in oil prices, etc.
So, it depends.

You OTOH, think that the surplus money must cause inflation, (except when it doesn't). You seem to base your opinion on the theory and expect everyone to just accept the common knowledge, that inflation will always someday result from the Gov. deficit spending. But, you don't care about an increase in the money supply that is caused by banks creating money to make loans.

I pointed out to you and everyone that that someday always comes when there is a black swan event like covid, or OPEC doubling oil prices. MS economists then say, "See, we told you so." But the black swan event would have caused inflation no matter what else happened or had been happening.

At one time some MS economists DEFINED inflation as a growth in the money supply. AFAIK, this was dropped.

[Puffer Fish]

Puffer_Fish, I have said many times and you keep ignoring it. IF there is unused labore and resources in the economy then deficit spending that the Fed mostly buys up, then there will be no inflation, unless it is caused by shortages or a spike in oil prices, etc.

Okay, but this seems to be a separate argument, or at least an argument based on a long complicated and controversial theory.
Were we to discuss this, I think it would take the main discussion on this thread off on a tangent.

Your assertion there certainly isn't an obvious given in economics.

You OTOH, think that the surplus money must cause inflation, (except when it doesn't). You seem to base your opinion on the theory and expect everyone to just accept the common knowledge, that inflation will always someday result from the Gov. deficit spending.

Again, if your MMT theory were correct, it might be a different issue.  

Can you just admit that MMT is not the main issue in this story?
Or are you saying that is ultimately what your entire argument in the issue of Argentina relies on?

But, you don't care about an increase in the money supply that is caused by banks creating money to make loans.

That seems to have little to do with the issue of Argentina. It seems like you are trying to take the discussion off on a tangent of arguing about MMT and whether printing more money causes inflation.

MS economists then say, "See, we told you so." But the black swan event would have caused inflation no matter what else happened or had been happening.

This is still irrelevant to the issue of Argentina. You seem to be talking about MMT and inflation in general now.


I think both you and I agree that in this case the government trying to artificially keep down interest rates is the same thing as the government printing more money to pay off creditors so government does not have to pay those high interest rates on its debt.

So the issue is really one of the government trying to "monetize debt".

[Steve_American]

Okay, but this seems to be a separate argument, or at least an argument based on a long complicated and controversial theory.
Were we to discuss this, I think it would take the main discussion on this thread off on a tangent.

Your assertion there certainly isn't an obvious given in economics.



Again, if your MMT theory were correct, it might be a different issue.  

Can you just admit that MMT is not the main issue in this story?
Or are you saying that is ultimately what your entire argument in the issue of Argentina relies on?


That seems to have little to do with the issue of Argentina. It seems like you are trying to take the discussion off on a tangent of arguing about MMT and whether printing more money causes inflation.


This is still irrelevant to the issue of Argentina. You seem to be talking about MMT and inflation in general now.


I think both you and I agree that in this case the government trying to artificially keep down interest rates is the same thing as the government printing more money to pay off creditors so government does not have to pay those high interest rates on its debt.

So the issue is really one of the government trying to "monetize debt".

With all due respect P_F you were the one who changed from discussing Argentina to discussing the general case.

I agree that my reply was not on the topic of Argentina.

You wrote, "If you want government to lower rates, to be able to pay lower interest rates, what that really involves is the government-controlled Central Bank lending out that money for government to spend, rather than government borrowing it from the private sector.

That will cause all sorts of problems, and cause even more inflation."

Where do you say you are talking just about Argentina?
.

[Puffer Fish]

Explain how lowering interest rates would not be different from "giving money to the rich" in other countries.
You do realise that to be able to lower interest rates, Argentina's Central Bank would have to buy that debt outright? That IS how a Central Bank lowers interest rates, the main thing that would be going on with that policy.

So the two options (if we're comparing them) come down to either printing money to buy all of the debt, or printing money to pay the interest payments on the debt.

[Steve_American]

Explain how lowering interest rates would not be different from "giving money to the rich" in other countries.
You do realise that to be able to lower interest rates, Argentina's Central Bank would have to buy that debt outright? That IS how a Central Bank lowers interest rates, the main thing that would be going on with that policy.

So the two options (if we're comparing them) come down to either printing money to buy all of the debt, or printing money to pay the interest payments on the debt.

That sentence is very hard for me to understand. Does it mean?
1] Explain how lowering interest rates would be different from "not giving money to the rich" in other countries.
2] Explain how lowering interest rates would not be the same as "not giving money to the rich" in other countries.
3] Explain how lowering interest rates would be the same as "giving money to the rich" in other countries.

AFAIK, these 3 all mean the same as your sentence. I tried to just move the negatives around.

If #3 is what you meant, then AFAIK, buying bonds from the rich to lower interest rates, is not giving money to the rich. So, because it is the opposite of giving, I can't explain why they are the same.
. . How is it "not giving money to the rich"? Answer, the rich already own the bonds, so they already have the money that the bond gives them. Buying the bonds just changes 1 form of money into another form of money. Lowering interest rates on new bonds does give less interest going forward to the rich who are the only ones who can buy the bonds.
. . Since you did view the video, you don't understand that Argentina feels it must obey the IMF when it says "raise interest rates to 97%".

And, I say again, I'm not expert enough to understand the situation on Argentina.

However, every advanced nation is not like Argentina; or if the nation is in the EU or EZ then it could and should leave the EU to get out from under being RULED by rules that make no sense when all currencies are fiat currencies. A new EU can be formed without these rules or an EU which is like the US and does tax and spend massively in poor nations or nations that must import so they have cash to pay for the imports (which is what the US does for poor red states). If Germany doesn't want to join, that is fine. It can go on alone.

An example of how dysfunctional the EU rules are is this one.
The US has to add to the deficit more now because of weather and fire damage caused by the changing climate. The EU rules don't allow nations to deficit spend when their debt/GDP is over 60% (most of the nations are already over 60%), and they don't allow the EU to spend in emergencies caused by ACC. Yes, that rule is currently suspended, but they say they will reimpose it very soon.
. . So, as ACC gets worse, this is going to become a huge problem, if it isn't already.

.

[Puffer Fish]

That sentence is very hard for me to understand.

I think it was your contention that raising interest rates on the debt would be equivalent to "giving money to the rich".

I was trying to make you realise that lowering interest rates would not end up being different from that, and in some ways would even make it worse.

If interest rates rise, it means those "rich people" (according to you) get higher interest rates.

But if Argentina's Central Bank attempts to lower interest rates, that means the Central Bank has to pay those "rich people" outright, to take over the loan.

You obviously did not seem to realise this.

I keep telling you that you seem to be unable to see the bigger picture.

buying bonds from the rich to lower interest rates, is not giving money to the rich.

Except you have to pay off those rich people to take over those bonds.

You either pay the interest, or you have to buy back the bonds.

[Puffer Fish]

By the way, this is too complicated to explain, but the artificial reduction in interest rates is very intimately connected to how much inflation will be caused.

Theoretically, Argentina's Central Bank could buy back debt and, so long as Argentina's Treasury still paid the same interest rates to the Central Bank as those in the free market, it would not necessarily cause inflation, even though the money supply expanded. But that of course would be pointless. The whole point why the Central Bank would choose to buy this debt is to try to lower interest rates.

The real issue is the government does not have the money to buy back the debt, but the Central Bank can try to buy back some of the debt if it issues more money. But then there are inflationary problems.

[Rancid]

I know I sound like an asshole, but maybe i should plan my vacation in Argentina. It's been like 15 years since i was last there. Sounds like I might be able to life like a fucking king there.

[Steve_American]

I think it was your contention that raising interest rates on the debt would be equivalent to "giving money to the rich".

1] I was trying to make you realise that lowering interest rates would not end up being different from that, and in some ways would even make it worse.

If interest rates rise, it means those "rich people" (according to you) get higher interest rates.

But if Argentina's Central Bank attempts to lower interest rates, that means the Central Bank has to pay those "rich people" outright, to take over the loan.

You obviously did not seem to realise this.

I keep telling you that you seem to be unable to see the bigger picture.

Steve_American wrote:
buying bonds from the rich to lower interest rates, is not giving money to the rich.

P_F replied:
2] Except you have to pay off those rich people to take over those bonds.

You either pay the interest, or you have to buy back the bonds.

1] It so happens that last night I happened to hear Warren Mosler explain how raising interest rates in Argentina causes inflation. He explained that when the Gov. pays high interest on the bonds then the rich use the cash to buy dollars so the money keeps its value better. This gives pesos to foreigners this drives down the international value of the peso. This makes imports more expensive, and this drives inflation.

So, it seems like you are right. The inflation happens no matter what the Gov. does. Unless the Gov. does something radical, see below.

2] No you are the one how doesn't understand. The rich already have money in the form of bonds. Mosler asserts that bonds are very much like a savings acc. Making them move their money from their savings acc. to a checking acc. is not giving them money.

OTOH, Mosler has said that in his opinion (for nations like the US) the Fed/Gov should set the interest rate at zero or at least less than 1% and never move it. Then the Gov. ends the unnecessary rule that it must sell bonds after it deficit spends to equal the new deficit spending. This means it just spends without selling bonds. It can still sell bonds if anyone wants to buy them at the set very low interest rate.
. . I wonder if he means for this to apply to Argentina?

In the video I just saw with Mosler, he said that raising interest rates to 90% just increases inflation to 90% so, soon the Gov. must raise rates to 97%. So, it is endless.
. . So, what happens if the Gov. just stops selling bonds and just spends, like Mosler suggests?
.

[Steve_American]

I know I sound like an asshole, but maybe i should plan my vacation in Argentina. It's been like 15 years since i was last there. Sounds like I might be able to life like a fucking king there.

You will, if you don't get kidnapped.

So, you may want to spend on security.

[Potemkin]

I know I sound like an asshole, but maybe i should plan my vacation in Argentina. It's been like 15 years since i was last there. Sounds like I might be able to life like a fucking king there.

Security, mang. Youze gonna need good security….