Right so lending in a foreign currency is silly and dumb according to the boards MMTers and apparently me connecting MMT to these clowns is inappropriate??
b_b
1 Aug 2014, 09:09 PM
Source?
You brought up MMT not me....still not sure why. Perhaps you are insecure about it because of your poor knowledge on the subject? That's ok - you are not alone When you calm down, one day I will help you with your many levels of misunderstanding.
Anyway, back to the topic Argentina. My position.
The hedgies made a bad trade - they should just live with it. Argentina should tell them to fck off.
Nothing you have posted constructs an alternative argument. Just your usual MMT is bad ... blah blah blah.
Obfuscate all you want.
Abusing my knowledge of MMT does not alter the reality MMT is supposedly clear that high inflation requires action
Right so lending in a foreign currency is silly and dumb according to the boards MMTers and apparently me connecting MMT to these clowns is inappropriate??
No that's incorrect, BORROWING in a foreign currency is silly and dumb.
There is no easy way out for cash-strapped Argentina, which on Thursday defaulted on its sovereign debt for the second time in 12 years after holders of the country's restructured bonds failed to receive interest payments worth $539 million.
This crisis has been long in the making. And while it is the result of several factors, Argentina's original sin is clear: borrowing in a currency out of its control.
The recent events have deep roots. Following a hyperinflationary bust and riots in 1989, Argentina adopted a currency regime in which the peso was fixed at a 1:1 convertibility ratio with the U.S. dollar. Argentina then began borrowing heavily in U.S. dollars instead of the inflation-addled peso, since it reduced borrowing costs and helped temporarily restore market confidence. But Argentina's "economic miracle" all came crashing down during the so-called great depression of 1998-2002, which saw Argentina default in 2001 on dollar-denominated bonds worth $81 billion.
A large majority of the country's bondholders surrendered their claims before a deadline in February 2002, in exchange for new bonds worth roughly 35 cents on the dollar. But a group of holdouts led by billionaire hedge fund manager Paul Singer — which the Argentine government has dubbed vultures — bought up defaulted government debt, and have been pursuing the government for the face value of the bonds, plus interest, (about $1.3 billion in all) in American courts.
There were a lot of problems with Argentina's approach. For one, being on a fixed exchange rate means accepting someone else's monetary policy. So when the U.S. Federal Reserve tightened monetary policy in 1999, it made things difficult for Argentina just as the Argentine economy was beginning to struggle. Additionally, a strengthening U.S. dollar in the 1990s made Argentinean goods less competitive in international markets.
But the biggest problem was the fact that Argentina's external debt load was denominated in dollars — a currency that Argentina did not control, and so had to trade goods and services to acquire. Argentina's external debt load prior to its depression was by no means excessive, coming in at less than 40 percent of GDP. The trouble was not the amount of debt, but the nature of that debt.
For a government, borrowing in a currency you don't control is like being back on the gold standard. If you owe a creditor a ton of gold, and you don't have it, then you have to acquire it either by trading for it or digging it out of the ground, creating the risk that you will run out of money. A country that controls its own currency, as the U.S. does, faces no such risk. There is a theoretically infinite supply of dollars for the U.S.
The eurozone crisis offered a similar lesson. Like Argentina, countries in Europe have given up their monetary sovereignty to an external central bank. While being part of a big, powerful monetary union lowered borrowing costs for Greece, Spain, and Portugal — allowing them to go on debt-fuelled spending binges — they were borrowing money in a currency they did not control, and so were prone to the danger of running out of money.
Luckily, in the last two years the European Central Bank has stepped in to backstop these countries, but not without the cost of soaring unemployment — above 25 percent in Spain and Greece — and mass bankruptcies. For Argentina, the Fed is under no such obligation, since the U.S. and Argentina are not part of an official currency union.
Argentina arguably has bigger problems to worry about — like how to turn the country around being plagued by inflation, hyperinflation, mass unemployment, and frequent financial crises. Major institutional changes — like a new, more credible central bank, and new regulatory frameworks that can attract major foreign investment — are surely needed.
But the key lesson for the rest of us is that borrowing in a currency that you don't control exposes you to existential risk. As Argentina is discovering, it is not very fun.
Now please stop making stuff up.Here is an article on Argentina's woes by John Aziz who to the best of my knowledge isn't an MMT'er
You are just obfuscating
Argentina has high inflation and you refuse to agree they need to spend less money or raise interest rates or raise taxes or default or some combination of this to get their finances in order. Instead you have declared that spending less money and so forth would be bad for the poor and good for the rich.
How about you produce a reply that makes sense?
Andrew Judd
1 Aug 2014, 01:02 PM
Incidently the MMT solution for Argentina is clear. Some combination of default or selling state assets, raising taxes, raising interest rates and printing less money and working harder. I think that could almost be called Thatcherism??
Argentina has high inflation and you refuse to agree they need to spend less money or raise interest rates or raise taxes or default or some combination of this to get their finances in order. Instead you have declared that spending less money and so forth would be bad for the poor and good for the rich.
How about you produce a reply that makes sense?
I haven't been commenting on Argentina's economy, I only commented on whether they should pay the hold out bond holders. You may recall that I said they should default because their own people need the money more than wealthy bond vultures like Singer.
I can only assume that you have been drinking heavily.
Any expressed market opinion is my own and is not to be taken as financial advice
I haven't been commenting on Argentina's economy, I only commented on whether they should pay the hold out bond holders. You may recall that I said they should default because their own people need the money more than wealthy bond vultures like Singer.
I can only assume that you have been drinking heavily.
You are obfuscating. The amount owed to the vulture fund holdouts is trivial. Obviously you want all of the USD debt defaulted upon including the discount bonds offered as 30% of the other bond holders lending. Once that happens will you agree they need to raise taxes cut spending raise interest rates as required to reduce inflation?? I dont think so. In your eyes inflation is good.
You are obfuscating. The amount owed to the holdouts is trivial. Obviously you want the whole lot to be defaulted upon. Once that happens will you agree they need to raise taxes cut spending raise interest rates as required to reduce inflation??
I was never commenting on Argentina's economy, you are trying to put words into my mouth.
I have renegotiated debts on behalf of other people on quite a few occasions, never of course in this league, but what I do know is that you draw the line and you hold that line. If creditors push too hard I hang them out to dry until they get the point. Unsecured creditors have no leverage and that lack of leverage can be exploited.
That may not be what Argentina wants to do, but perhaps it's what they have to do. Unsecured debts can renegotiated quite easily, don't you understand that? That's why banks take mortgages, so they can't be treated like an unsecured creditor.
I'm not well informed on Argentina and I have no wish to offer them advice. You are also not well informed on Argentina, yet you think you have the answers.
Any expressed market opinion is my own and is not to be taken as financial advice
I was never commenting on Argentina's economy, you are trying to put words into my mouth.
I have renegotiated debts on behalf of other people on quite a few occasions, never of course in this league, but what I do know is that you draw the line and you hold that line. If creditors push too hard I hang them out to dry until they get the point. Unsecured creditors have no leverage and that lack of leverage can be exploited.
That may not be what Argentina wants to do, but perhaps it's what they have to do. Unsecured debts can renegotiated quite easily, don't you understand that? That's why banks take mortgages, so they can't be treated like an unsecured creditor.
I'm not well informed on Argentina and I have no wish to offer them advice. You are also not well informed on Argentina, yet you think you have the answers.
The point is, MMT recommends higher taxes , raising interest rates, defaulting (thats implicit because its a core message its not a problem to default), and spending less money if inflation is high. How high is high for you and the other MMTers????
The point is, MMT recommends higher taxes , raising interest rates, defaulting (thats implicit because its a core message its not a problem to default), and spending less money if inflation is high. How high is high for you and the other MMTers????
I don't believe MMT recommends any of that, why would it? MMT is just a description of how the economy and the banking system work, I don't believe it makes policy decisions although I guess many people who understand MMT will have their own agenda just as you do.
You seem to be having an internal conflict within your own mind. An argument with what you think others may be thinking.
Best of luck with that.
Any expressed market opinion is my own and is not to be taken as financial advice
Argentina has the other currency problem as well, which is basically a failure of governance/government.
US$ is a secondary unofficial but widely accepted method of payment and not just for trivial amounts.
When I was last there you'd pay for your coffee at a cafe in pesos but my landlord required me to pay rent on my apartment in Buenos Aries in US$ - folding stuff of course. No bank accounts, no records. Also people, even locals, talked about property values (to buy) in US$ not pesos, although I was never close to any actual transactions so don't know the detail there.
I know this is unrelated to the current government debt issue but in a sense that is systematic of the failure of government to govern and maintain control over the medium of exchange within its borders.
Andrew Judd
1 Aug 2014, 10:46 PM
The point is, MMT recommends higher taxes , raising interest rates, defaulting (thats implicit because its a core message its not a problem to default), and spending less money if inflation is high. How high is high for you and the other MMTers????
MMT is a description of transactions in an economy. By seeing these clearly it leads to 'recommending' likely actions that could have a positive effect on the position that an economy is in but doesn't push a dogmatic higher this, lower that barrow. In particular, I can't see MMT leading to a view that taxes should be high except in a super charged overheating economy at full capacity where you might want to create a drag on economic output - which would certainly not be the case for Argentina at the moment (nor pretty much any where I can think of).
Actually, if anything you seem to have MMT backwards on each of the points you make below.
I don't believe MMT recommends any of that, why would it? MMT is just a description of how the economy and the banking system work, I don't believe it makes policy decisions although I guess many people who understand MMT will have their own agenda just as you do.
You seem to be having an internal conflict within your own mind. An argument with what you think others may be thinking.
Best of luck with that.
If you really do not know that its a pivotal part of MMT that raising taxes is necessary/desirable to control inflation then we can just give up now.
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