Argentina vs USA
I just finished reading the Wikipedia entry for Argentina's economic history. As with all of the Wikipedia entries, it is a hit and miss proposition, but it serves the purpose of giving an overview of the nation's economic history in five minutes. One of the classic lines is : "During the 1990s Argentina's financial system was consolidated and strengthened." Yet, somehow the same financial system blew up in spectacular fashion between 1999-2002. Hmmmm.
The real purpose of this post is to compare and contrast the nations of Argentina and the US. First, the US has maintained the world reserve currency for the last 75 years or so. Argentina has never nor could never even remotely fantasize about having the world use its currency as a reserve currency. The US has relatively low and stable inflation, occasionally experiencing deflation, with the worst inflation rate reaching the high teens for a short period of time. Argentina averaged 200% plus annual inflation for two decades, yes DECADES. Inflation seems to be heavily ingrained in the financial DNA of this beleaguered nation. The Argentine economy is consistently imbalanced. Whether trade balance, budget balance or economic industry imbalances caused by nationalizations and privatizations, serious economic imbalances are the norm in Argentina. Yet, due to a civilized and educated populace, they have still achieved economic growth overall. It has been uneven, messy, painful and largely criminal, but it has still been growth. The modern US economy does bear some resemblance to the Argentine model (although the British model of 100 years ago is probably a closer model). But the largest difference is the debt holdings of the two countries. Argentine debt has historically been denominated in US Dollars, so in a sense, the US is responsible for much of the trouble in Argentina financial circles ( more precisely the US banks are responsible). The US debt is virtually all denominated in our own currency which very fortunately, is the world reserve currency, backed by nothing. So we can print it at our very own whim, whenever necessary. For this reason, the Argentine situation seems unlikely to apply to the US, specifically since although the present administration is bent upon spending money it does not have in tremendous amounts, a rapid adjustment of the currency value is unlikely because virtually all other currencies are equally despised. This does not mean that double digit or chronically high single digit inflation numbers will not be likely in the years ahead, we should be highly skeptical of "hyperinflation" predictions for the US economy. While our problems are massive, in short, we are not Argentina.
The real purpose of this post is to compare and contrast the nations of Argentina and the US. First, the US has maintained the world reserve currency for the last 75 years or so. Argentina has never nor could never even remotely fantasize about having the world use its currency as a reserve currency. The US has relatively low and stable inflation, occasionally experiencing deflation, with the worst inflation rate reaching the high teens for a short period of time. Argentina averaged 200% plus annual inflation for two decades, yes DECADES. Inflation seems to be heavily ingrained in the financial DNA of this beleaguered nation. The Argentine economy is consistently imbalanced. Whether trade balance, budget balance or economic industry imbalances caused by nationalizations and privatizations, serious economic imbalances are the norm in Argentina. Yet, due to a civilized and educated populace, they have still achieved economic growth overall. It has been uneven, messy, painful and largely criminal, but it has still been growth. The modern US economy does bear some resemblance to the Argentine model (although the British model of 100 years ago is probably a closer model). But the largest difference is the debt holdings of the two countries. Argentine debt has historically been denominated in US Dollars, so in a sense, the US is responsible for much of the trouble in Argentina financial circles ( more precisely the US banks are responsible). The US debt is virtually all denominated in our own currency which very fortunately, is the world reserve currency, backed by nothing. So we can print it at our very own whim, whenever necessary. For this reason, the Argentine situation seems unlikely to apply to the US, specifically since although the present administration is bent upon spending money it does not have in tremendous amounts, a rapid adjustment of the currency value is unlikely because virtually all other currencies are equally despised. This does not mean that double digit or chronically high single digit inflation numbers will not be likely in the years ahead, we should be highly skeptical of "hyperinflation" predictions for the US economy. While our problems are massive, in short, we are not Argentina.
posted by Matt Butler at 9:31 PM
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