Argentine inflation

https://www.nytimes.com/2022/08/06/business/inflation-argent…

**Think 9% Inflation Is Bad? Try 90%.**

**With the world grappling with rising prices, a tour through Argentina reveals that years of inflation can give rise to a truly bizarre economy.**
**By Jack Nicas and Ana Lankes, The New York Times, Aug. 6, 2022**

**....**

**Many economists expect inflation in Argentina, already at 64 percent this year, to hit 90 percent by December....**

**Argentina’s recent bout with hyperinflation is linked to the same things that have driven up prices worldwide, including the war in Ukraine, supply-chain constraints and big increases in public spending.**

**But many economists believe Argentina’s inflation is also self-inflicted. In short, the country spends far more than it takes in to fund free or deeply subsidized health care, universities, energy and public transportation. To make up for the shortfall, it prints more pesos....**

**Pesos disintegrate in value, so you better spend them as quickly as you can. People buy on installment because the later payments are worth less than the earlier ones. ...** [end quote]

Large transactions in Benjamins (U.S. $100 bills), preferably large-faced and new. Kept in safe deposit boxes, not bank accounts. Barter, sometimes using the crédito, a credit ticket, which is the currency for the barter market, but that’s also inflating.

Nobody knows what prices should be, whether selling or buying.

This article has many colorful details about how Argentinians, rich and poor, deal with hyperinflation. But the lesson is general.

Always and everywhere, throughout history, supply and demand set prices. It doesn’t matter whether the currency is gold (Spain in the 1600s) or paper, having more currency (demand) than goods and services causes inflation. Government attempts at price controls only causes the suppliers to withhold production.

The same is true in the U.S. Every household has a unique mixture of goods and services so inflation will be unique for every household. Different government agencies massage their data to generate different overall inflation numbers.

But the undeniable fact is that the U.S., like Argentina, is living beyond its productive means, with much more promised in the future. That guarantees increased inflation in the specific areas of greatest productive shortfall, especially services like medical care. If we are cut off from low-cost goods (from low-wage foreign countries) inflation will rise in goods as well.

Will our future look like Argentina’s? If we do what Argentina has done, it will.

Wendy

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As has been pointed out on parallel threads, the US takes for granted that military, health and educational spending should be kept at completely irrational levels compared to what they contribute to our society. Layer on top of that the combination of the spending desired by Progressives and the tax cuts insisted on by our conservatives and the “middle” gets shredded by the polar pulls.

We are a country where the political class is not acknowledged, to the extent that few of their constituents pay attention to the consequences of their representative’s actions. But considering the lack of attention that most investors pay to what corporate officers do, it seems to be a part of human nature.

Jeff

Will our future look like Argentina’s? If we do what Argentina has done, it will.

Of course, we’re not currently doing the main thing that Argentina seems to have done: print more currency. To the contrary, the Fed is raising interest rates, which decreases the money supply.

At the moment, a bout of hyperinflation is one of the lower risks on my radar. I don’t spend one bit of thought worrying about it.

–Peter

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