All this happened to him in his presidency, but there is hope: “The Lord is tender and compassionate; he is patient and all love. He does not rebuke us all the time nor is his rancor eternal, He has not given us the payment that our evil deeds deserve (Psalm 103:8- version of God Speaks Today).
The fragmentary reading of the monetarist child’s manual
Each time the same speech was made it ended poorly for that reason, among many others. The model never matched the building. The close precedents are very unfortunate: 1976-1983, 1999-2001, 2015-2019. All ended with a fall in: GDP, GDP per capita, investment, consumption, reserves, wages and employment. External public debt and capital flight grew, with more poverty and indigence.
“Just as before we could assume that the public did not foresee the consequences of the future price level, now we have to consider the adjustments of inflation expectations”. The most important conclusion of Robert Mundell refers not to the determination of the precise scheme of the interest rates (real and nominal) of the titles in the short and long term that result from the rate of monetary expansion, but to the fundamental role of the rate of monetary expansion itself, which through its influence operates on expectations and the price of assets in determining the equilibrium level of monetary income. This function differs from concepts about the role of monetary policy that only give importance to changes in the stock of monetary assets.
Given the installed expectations, only a political conjurer, creative and audacious as Massa, shaking his cloak; she has been able to temporarily draw away the deceased left by the “Model M”. Avoiding a terminal crisis has been the great challenge of the entire post-Let’s Change period. And it has not been a minor task, taking into account the pandemic, the war in Europe, and all its consequences.
Alleviating the suffering and preventing the dynamics of a financial crisis from blowing up the country to pieces, continues to be a daunting task since 2019. Creativity and heterodoxy applied to disaster. Soybean dollar, Qatar dollar, BCRA purchases of Treasury bonds to support their values, a little development credit so that private sector SMEs do not succumb…
Chronicle of an economic disaster
When Argentina falls from the world in January 2018, the enormous financing needs, arising from inconsistent public spending financed with credit from the private sector, accumulated an extraordinary growth in debt and the monetary issue of the BCRA, which was absorbed with LEBACS and repos, at the price of the $15/$16 dollar, exceeded US$80,000 million. For this reason, the rate of increase in the debt in pesos is worrisome, although less than in 2017 (in dollars), because the nominal interest rate rose, but to a lesser extent than the inflation rate, therefore, the rate interest rate fell during inflation.
This is not to say that debt in pesos is not a problem. Just clarify that it is an old pproblem inherited from the Sturzenegger (BCRA) presidency. The shortage of dollars left by the “Model M” with a BCRA with few reserves, overwhelmed since 2019 and a Peronist government determined to resist “the devaluation club”, to avoid the pass through or price pass, requires daily creativity. What Massa must anticipate is that the inconvenience of Treasury financing in the domestic market could become complicated when “the mufa club” (everything went wrong) begins to carry out its traditional stinking campaign. A very high inflation rate of 54% in 2019 with upward inertia until today, in the context of the worst possible stocks (absence of international credit and very low reserves), prompts the BCRA to issue pesos to finance the treasury.
The degree of nominalization since 2018
The Inflationary inertia of Macrismo which doubled the 2015 nominal inheritance, plus the indexation of transactions in shorter terms, the joint ventures with salary agreements that need to recover the loss, the devaluation at 18% quarterly and the rate adjustment; They do not favor a slowdown. In this way, monetary policy was chained to fiscal policy, with private M3 rising to 80% year-on-year and private M2 rising to 50% year-on-year, with a fall in the demand for money.
The 4-month price freeze for 1,800 products will probably help, although the slowdown in trade sales will help more -it is already being felt-, providing a temporary drop in inflation in December, January and February. It is clear that we cannot talk about price freezing, a brief anti-inflationary instrument for times like this, while the key instrument is absent: the inspection of the Ministry of Commerce.
From the beginning, Massa announced that the BCRA It was not going to issue until the end of the year to finance the Treasury with the intention of lowering inflation expectations, and that was fulfilled. There is no direct issuance to the treasury via advances. The inflation rate will probably come down in November. The real amount of money sank and the public continues to scrutinize different defenses to protect themselves from inflation, because the media and ecolobists constantly beat the patch, transmitting insecurity and bad omens.
In January 2018 we fell from the world: nobody lent us more
So he BCRA issues to buy government securities in the secondary market to maintain prices and provide new placements of Treasury debt. The greater monetary expansion is explained because this government received a country that does not have available financial resources. Finally, the mistrust generated by the Macrista government destroyed the capital market that opened 20 months earlier, which implied the need to place BCRA debt. Was it necessary at 80% with 54% inflation? – We do not know. – But without that monetary absorption (exaggeratedly remunerated -26% real positive-) it was certain that, in 2019, hyperinflation would have broken out, maliciously postponed for the next president. Given the extraordinary growth of the Macri debt and the Lacunza default in pesos in August 2019, the market demands increasingly higher interest rates, although in real terms they are still lower than those of Sandleris.
Synopsis
The Government it reduced the banks’ unremunerated reserve requirements on deposits, which provided an increase in the multiplier. The banks’ reserve requirements deposited in their current accounts at the BCRA grew barely, when total private sector deposits grew 10 times more, with which the correspondence between reserve requirements and deposits plummeted, facilitating a rise in the private M3 multiplier in October , which led to the increase in monetary aggregates exceeding the growth of the monetary base.
The expansive effect of the reserve requirements versus deposits situationis a consequence of the change in the composition of deposits, where term deposits without non-remunerated reserve requirements have doubled so far in 2022 and demand deposits, which have reserve requirements, have increased by only half in the same period.
Today the real amount of money -around 8% of GDP- is a proportion similar to that of the 2019 Macri administration, comparing it with the three quarters prior to the current limit, established in the months prior to the 2019 PASO-when Macri blame the Argentines for losing 15% and give the order to the table of an important bank, to make the dollar explode, and thus destroy the value of the assets, without assuming the political cost.
It is true that today the monetary base is growing more than then, but the GDP grows at an annualized rate of 5%, against a fall of Macri (-2.2%) in 2019. Macri with real contraction of the money supply of 50% , had a fall in the real demand for money, and an annualized inflation rate of 54%, stagflation, inflationary inertia, due to inflation expectations and an oppressive recession. Truly a Mufa Model.
Financing needs
The State has financing needs due to the fiscal deficit for a decade; only that until 2013 they were lower than those of Sweden and Switzerland. From the voracious spending of the Macri administration, the unheard of tax cuts so that the collection falls and the economy that was supposedly going to respond with growth, the situation is more embarrassing. All this due to the terms in which the public debt was increased and its extravagant interests (4 times the rates paid by the populist government of Evo Morales). Public spending rose incessantly, then Minister Carolina Stanley tripled social plans, so that friendly capitalism continues.
Today the financial needs can be financed simply with debt placement in the domestic market and monetary expansion through the issuance of pesos. Because the Macrista government totally conditioned the future of Argentines, denying them credit and leaving monetary policy exposed to solving the problems, generating inflation expectations. Currently only 1/3 of the increase in deposits goes as credit to the private sector. Other 3/4 parts are applied to finance the Treasury and the BCRA.
summarizing
The dollars are not enough and the BCRA has a meager level of reserves. There are growing problems to finance the public sector, while the level of nominality reaches its peak. The Macri administration stimulated an inconceivable economic policy, a mixture of state interventionism and capitalism of friends, with poultices of Social Development and different hoaxes for all issues. From sunup to sundown, they seek to dampen the manifestations of those original calamities, preventing the postponed disaster from exploding, where in addition to the damage it caused, as they say in the World Cup, it attracted more mufa. The COVID pandemic appeared, the war in Europe and the drought. Although it is a joke that began during his troubled government, it ended up becoming popular in the World Cup in Qatar 2022.
In September the activity (EMAE) slowed down 0.3% compared to August, in October the available indicators suggest that the slowdown in consumption would continue; consumer confidence (UTDT) was affected in both October and November; Construction fell in November compared to October, showing an incipiently negative year-on-year variation, while industrial production once again showed a slight fall (-0.9%) in October compared to the previous month. With everything and that, closing the mouths of the doomsayers who again erred their forecasts, the year 2022 ends with a rise in GDP closer to 6% than 5%; very far from the 2% that they announced at the beginning of the year. But foreseeable fluctuations in the inflation rate can have very real effects on economic activity. Said Bob Mundell, from the University of Chicago, professor of Rudiger Dornbusch, Jacob Frenkel, Peter Pedroni; that when prices are expected to rise, the nominal interest rate rises, but to a lesser extent than the inflation rate, which drives a marked expansion of investment and an acceleration of growth. And that’s what happened until Massa arrived. Strange that the monetarists do not find out.
As we said before, due to the phenomenal increase in debt and capital flight since 2016, the different financing needs of the State in 2023, 2024, will continue to be unable to be financed with debt and it will probably be necessary to resort to issuing money. It is definitely clear that the “mufa model” did not explode before the 2019 elections, because it postponed its practically irreversible consequences. If the same perverse model that led us to ruin is the alternative that citizens choose in 2023, a social outbreak can only be expected in less than a year after assuming power. The phenomenon of financial crises once again takes a strong position in the opposition -many former ministers and officials of De la Rúa and Macri are part of the project-, and they redouble the bet with deregulations, privatizations, absence of controls and government interventions. God forbid, is our prayer.
Graduate Professor UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books. @PabloTigani
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
