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Monthly Archives: May 2013

http://www.marketoracle.co.uk/Article40386.html

Currencies / Fiat Currency

May 10, 2013 – 02:48 PM GMT

By: Steve_H_Hanke

English: Plaza del Congreso, Buenos Aires, Arg...

English: Plaza del Congreso, Buenos Aires, Argentina. Español: Réplica firmada de El Pensador de Rodin, Buenos Aires, Argentina. Situada en el barrio de Monserrat, frente a la Palacio del Congreso de la Nación Argentina. (Photo credit: Wikipedia)

Argentina is once again wrestling with its long-time enemy, inflation. Now, it appears history may soon repeat itself, as Argentina teeters on the verge of another currency crisis.

As of Tuesday morning, the black-market exchange rate for Argentine pesos (ARS) to the U.S. dollas (USD) hit 9.87, meaning the peso’s value now sits 47.3% below the official exchange rate. This yields an implied annual inflation rate of 98.3%.

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For now, the effects of this elevated inflation rate are being subdued somewhat by Argentina’s massive price control regime. But these price controls are not sustainable in the long term. Indeed, the short-term “lying prices” they create only distort the economic reality, ultimately leading to scarcity.

There is, however, a simple solution to Argentina’s monetary problems: dollarization. I have advocated dollarization in Argentina for over two decades, well before the blow up of their so-called “currency board.” To put the record straight, Argentina did not have a true currency board from 1991 to 2002. Rather, as I anticipated in 1991, the “convertibility system” acted more like a central bank than a currency board. This pegged exchange rate system was bound to fail—and fail, it did.

The 2001-02 Argentine Crisis could have easily been avoided if the country had simply dollarized. Argentina had more than sufficient foreign assets to dollarize their economy even late into 2001. But the Argentine government, through a series of policy blunders, ended up “floating” the currency.

Argentine peso

Argentine peso (Photo credit: Wikipedia)

Not surprisingly, Argentina is now back to where it was in the late 1980s. So, how can Argentina dollarize? In short, the Banco Central de la Republica Argentina (BRCA) would take all of the assets and liabilities on its balance sheet denominated in foreign currency and convert them to U.S. dollars. The Central Bank would then exchange these dollars for all the pesos in circulation (monetary base), at a fixed exchange rate. By my calculation, the BRCA would need at least $56.36 billion to dollarize at the official exchange rate (as of April 23, 2013).

As of April 23, the BRCA had net foreign assets equivalent to $31.23 billion. If Argentina were to dollarize at the official ARS/USD exchange rate of 5.17, it would fall $25.13 billion short of the $56.36 billion needed to cover the monetary base. That said, if the BRCA were to use an exchange rate closer to the black-market (read:free-market) exchange rate, this could be more easily accomplished. For example, if Argentina decided to dollarize at an ARS/USD exchange rate of 9.33 pesos to the dollar (5.5% lower than the black-market ARS/USD exchange rate as of Tuesday), only $31.23 billion would be required to cover its monetary base and dollarize the economy. This is the exact amount of net foreign assets held by the BCRA (see the accompanying table).

The end result would be an Argentine economy free of the inflation that has plagued it for decades. Indeed, Argentina could finally experience those benefits enjoyed by other dollarized countries, like Ecuador.

Below, I present (with only one minor change) my blueprint for Argentina’s dollarization, which I first presented over a decade ago.

By Steve H. Hanke

www.cato.org/people/hanke.html

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2013 Steve H. Hanke – All Rights Reserved 
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2013 http://www.MarketOracle.co.uk – The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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Margaret Thatcher with Ronald Reagan at Camp David

Margaret Thatcher with Ronald Reagan at Camp David (Photo credit: Wikipedia)

If Thatcher’s supporters don’t want her death and funeral politicized they should stop trying to use it to re-write history as party political propaganda

The Conservative party claim no-one should denigrate Thatcher’s record at this time.   If they didn’t want her death and funeral politicized perhaps they shouldn’t have tried to use it for party political ends and to try to justify their current shameful policy of taking from the disabled, the poor and the unemployed to fund tax cuts for millionaires.

Given the Thatcherite establishment’s shameless rewriting of history, politicization of her death and funeral and attempt to use it to gain votes, the political opponents of the government have no option but to respond in kind. Margaret Thatcher has thousands of admirers who are senior politicians, journalists and editors telling her version of history and the present. They won’t be allowed to stop the millions of people who oppose Thatcherism, and those who suffered under Thatcher and her legacy under her successors, telling the other side of the story.

Thatcher and the Falklands War – 
Not a war hero but either incompetent 
or else deliberately engineering 
a war that wouldn’t have happened otherwise

The attempt to present her as a great war leader in relation to the Falklands, with 800 members of the military to be present at her funeral, is especially hard to reconcile with the historical facts.

When the Argentinians began talking of taking the Falklands in 1977, Labour Prime Minister Jim Callaghan and Foreign Secretary David Owen were persuaded by military chiefs to send a Royal Navy fleet to the South Atlantic to signal Britain would fight any invasion. The Argentinians backed down. In a similar situation in 1982 Thatcher’s government withdrew the last Royal Navy ship from the area during spending cuts, leading the Argentine military junta to believe Britain would not fight for the islands (18) – (19). They invaded – and then Thatcher declared war. Hundreds died as a result.

Some suggest that Thatcher, then the most unpopular Prime Minister in British history, after increasing unemployment to over 3 million, wanted a war to restore her popularity (20).

It’s impossible to know whether this was the result of blind ideology in imposing spending cuts and incompetence in not caring where they were made, or whether Thatcher wanted the Argentinians to believe Britain wouldn’t fight in order to get a war to restore her political fortunes. Either way she was responsible for an easily avoidable war and all the deaths in it. By any rational standard she should be condemned for not preventing war as simply and easily as Callaghan did rather than lauded for winning a war against an inferior military.

In the case of the 1990-1991 Gulf War against Iraq, which Thatcher committed British troops to shortly before her party got her to resign over the poll tax, there is no such doubt. The Bush (senior) administration and the Kuwaiti monarchy duped Saddam into war with the US over Kuwait. Bush and his advisers sought to repeat Thatcher’s feat of going from unpopularity on domestic unemployment and recession to election victory on a tide of war fuelled nationalism ; they failed.

I won’t celebrate anyone’s death, but Prime Minister David Cameron’s claim that Thatcher “saved our country” and the £10 million state funeral (of which taxpayers will pay at least half the costs) are party political propaganda and a slap in the face to all the unemployed and disabled people facing benefit cuts today (1) – (2). The message is “She mattered, you don’t”.

Thatcherites, like Thatcher, are not revolutionaries but reactionaries who want to go back to the 19th century when there was no welfare state or government regulation

Thatcherites see themselves as radical reformers going up against “the establishment” and “vested interests”. For Thatcher this meant trade unions and public sector professionals like teachers, nurses, doctors and lecturers. For brave Chancellor George Osborne, a public school and Oxford University educated millionaire Chancellor of the Exchequer, it means the vast oppressive charities and churches who help the poorest (4).

Thatcherites aim to roll back all the progress made by Atlee’s post-war Labour government and take us back to the 19th century with no trade unions, no employee rights, no welfare state and no NHS (these “only encourage dependency”) – back to the poorhouse, the workhouse and the poor dying of hunger, cold or illness and being blamed for their own suffering.

It’s new only in rejecting the One Nation conservatism of politicians like Ian Gilmour MP (who condemned Thatcher’s policies and record in his book ‘Dancing With Dogma) and Prime Minister Harold MacMillan.

From On Yer Bike in the 80s to Workers and Shirkers today –
Different Decade, Same Thatcherite attempt to impose ideology over reality

The current Conservative government even continues to claim that it hopes its welfare “reforms” will “encourage people to work” even when it’s own (fiddled) figures show over 5 times more people unemployed (2.52 million) than job vacancies (494,000) (5) – (6). (The actual ratio is higher as the unemployment figures are fiddled downwards by using methods including counting people on unpaid temporary “workfare” placements as “employed” (7).)

So basic arithmetic shows there are no jobs available for over 80% of unemployed people in the UK ; but Thatcherites have never let facts or logic get in the way of an ideology which pretends that the most powerful and wealthiest have no responsibility for the massive effects of their actions, while the poorest and most vulnerable, who have no power or influence, are supposedly entirely to blame for every problem.

Osborne claims people on benefits are all “shirkers” who don’t work (when many do) and don’t work by choice (8) – (9).

So for the first time since 1945 benefits are being cut to punish all the supposed “shirkers” (inflation is 2.2%, but the rise in benefits this year is limited to 1% -a real terms cut) (10)

This is exactly the same crap that was shovelled by Thatcher and her ministers in the 80s, when, after being elected on a campaign that promised to get unemployment down, they increased it from 2 million to over 3 million – and then people like Norman Tebbit told the unemployed to “get on yer bike” and get a job.

Thatcher didn’t save Britain – she began the policies that led to our current problems

Far from saving Britain, Thatcher caused many of our current problems.

Setting us on the road to the banking crisis

As the late Conservative MP Ian Gilmour pointed out, by raising interest rates to double figures to cool a financial sector boom in the South-East of England, Thatcher destroyed much of Britain’s manufacturing industry, which was pushed into recession by the resulting over-valuation of the pound (hurting exports) and unaffordable credit, leaving us over-reliant on the financial sector, which she began the deregulation of with the 1986 ‘Big Bang’ (this being the main cause of the boom, which was as much a bubble as the one that burst recently) (11) – (12).

Destroying key industries due to blinkered ideology

She closed down our steel industry, while other countries, like Germany, continued subsidising steel and other key industries, even under conservative Chancellors like Helmut Kohl. As a result Germany’s economy remains stronger and its unemployment lower than ours.

(And in fact as Nobel prize winning South Korean economist Ha Joon Chang has shown with copious historical examples, every single developed country got that way by subsidising and protecting industries until they were strong enough to compete internationally (13))

Selling off assets that provided revenue to government

She sold off valuable assets like British Gas and British Telecom, losing the government revenue which could have funded the NHS, public education and the welfare state. While it’s likely ideology was the main driving force for these privatisations, they also funded short term income tax cuts which helped her win elections. No wonder former Conservative Prime Minister Harold MacMillan accused her of “selling the family silver”. In fact it was worse than that. She sold the geese that laid the golden eggs.

Deregulation and privatisation leading to consumers being fleeced

Her privatisation and deregulation of every economic sector led not to greater competition but to oligopoly – sectors dominated by a few large companies which took over smaller firms or pushed them out of business, before charging customers whatever they like due to informal price fixing or simple profiteering. For instance today a handful of energy companies dominate Britain’s market for electricity and gas for the domestic and business markets.

While benefits for the poorest are cut and capped, these companies are allowed to charge whatever they like. They have doubled their profit margin by percentage on their average customer between 2011 and the first quarter of 2013 – under two years. The gap between their own costs and the prices they charge to customers rises constantly. The heads of these companies are rewarded with knighthoods (14) – (16).

This is Thatcherism again. Those who have wealth are assumed always to deserve it, while those who are poor are assumed to be poor because they are lazy or spendthrifts. In reality some of the wealthiest people in Britain started off with wealth or a family with connections to get them jobs on the boards of big firms – and then used their own wealth, or the company’s, or the bank’s, to buy political influence with donations to party funds, effectively exempting their company or their entire sector from any significant regulation. (And no, I’m not saying this is true of anyone who has more money than average, some did work hard for it and take risks and pay their employees fair wages).

Selling off council houses without replacing them – 
meaning we have to pay housing benefit for rent for private landlords

She began the sale of council houses, without buying or building replacements. Today, due to the shortage of council houses, councils spend a fortune renting social housing from private landlords or paying housing benefits that go to those landlords in rent.

This is the main reason for high benefits payments to some families – because most of it goes on housing benefit that goes straight into the pocket of private landlords – but David Cameron’s Thatcherite government is capping the benefits payments to people stuck in this situation as if this was their fault, rather than buying and building enough council houses (17).

Every Daily Mail or Sun headline about asylum seekers or people on benefits living in mansions is a result of this policy, begun by Thatcher, but rather than blame her and her successors in government, they blame weak, powerless, easy targets instead.

The Poll Tax

The poll tax, which resulted in Thatcher’s resignation, was a local council tax under which everyone paid exactly the same amount irrespective of their income. It caused riots the last time it had been tried by an English ruler, in 1381, resulting in the peasants’ revolt. The Conservatives, who supposedly want everyone to know the history of Britain, seemed to be massively ignorant of it – they thought the poll tax was going to be hugely popular. Instead, as in 1381, it brought mass non-payment and riots. Thatcher, whose supporters claim she was acting on behalf of the “ordinary person in the street” showed she had no more clue what many of them wanted than medieval English kings knew of peasants’ needs.

A lover of freedom? Thatcher’s foreign policy

We’re told Thatcher was a “lover of freedom”. This is only true if you interpret freedom in the narrow neo-liberal sense of freedom for companies, banks and those with lots of money to do what they like – pay less tax due to tax cuts, avoid tax through tax havens, avoid regulation, charge customers whatever they want to, etc.

She certainly opposed Communism, but her role in it’s downfall, like Reagan’s, was negligible. Dissidents and protesters in the Soviet bloc did far more, as did Gorbachev – and before him Brezhnev by spending so much on the Soviet military that he drove the USSR’s economy into the ground. Her support for “freedom” elsewhere wasn’t just non-existent – she was supporting , training and arming the forces of many dictatorships.

 

El Hundimiento del HMS CoventryThatcher’s Falklands War got Hundred of killed due either to incompetence or cynical manipulation – Callaghan avoided a war in identical circumstances 5 years earlier by sending a small fleet to the South Atlantic.

http://alienatedleft.blogspot.com/2013/04/thatchers-falklands-war-got-hundreds.html

Thatcher’s Falklands War got hundreds killed due either to incompetence or cynical manipulation – Callaghan avoided a war in identical circumstances 5 years earlier by sending a small fleet to the South Atlantic

English: Commemorative plaque, The house where...

English: Commemorative plaque, The house where Margaret Thatcher was born, Grantham Français : Plaque commémorative, Maison natale de Margaret Thatcher, Grantham (Photo credit: Wikipedia)

The attempt to present Margaret Thatcher as a great war leader based on the Falklands War, with 800 members of the military to be present at her funeral, is bizarre once you know the historical facts.

When the Argentinians began talking of taking the Falklands in 1977, Labour Prime Minister Jim Callaghan and Foreign Secretary David Owen were persuaded by military chiefs to send a Royal Navy fleet to the South Atlantic to signal Britain would fight any invasion. In a similar situation in 1982 Thatcher’s government withdrew the last Royal Navy ship – the HMS Endurance – from the area during spending cuts, leading the Argentine military junta to believe Britain would not fight for the islands (1) – (2). They invaded – and then Thatcher declared war. Hundreds died as a result.

Some suggest that Thatcher, then the most unpopular Prime Minister in British history to that point, after increasing unemployment by over 50% to over 3 million after promising to reduce it during the 1979 election campaign, wanted a war to restore her popularity (3).

It’s impossible to know whether the decision to recall HMS Endurance was the result of blind ideology in imposing spending cuts and incompetence in not caring where they were made; or whether Thatcher wanted the Argentinians to believe Britain wouldn’t fight in order to get a war to restore her political fortunes. If the latter she was betraying members of the British armed forces just as much as Blair with Iraq. Either way she was responsible for an easily avoidable war and all the deaths in it. By any rational standard she should be condemned for not preventing war as simply and easily as Callaghan did rather than lauded for winning a war against an inferior military that could have been avoided.

In the case of the 1990-1991 Gulf War against Iraq, which Thatcher committed British troops to shortly before her party got her to resign over the poll tax, there is no such doubt. The Bush (senior) administration and the Kuwaiti monarchy duped Saddam into war with the US over Kuwait. Bush and his advisers sought to repeat Thatcher’s feat of going from unpopularity on domestic unemployment and recession to election victory on a tide of war fuelled nationalism ; they failed.

(1) = BBC News 01 Jun 2005 ‘Secret Falklands fleet revealed’, http://news.bbc.co.uk/1/hi/uk/4597581.stm

(2) = Freedman, Lawrence (2005) ‘Official History of the Falklands Campaign Volume 1’, Routledge, 2005, chapters 8 – 9

(3) = Lenman, B. P. (1992) The Eclipse of Parliament: Appearance and Reality in British Politics since 1914 (London: Edward Arnold)

Posted 4 weeks ago by calgacus

Labels: Callaghan Unemployment most Malvinas prevented Falklands Prime 1991 junta Argentinian 1977 armada Thatcher Calgacus minister war 1982 unpopular British Gulf

Thursday, May 16, 2013

Saving president Cristina

By: James Neilson

English: President of the United States Barack...

English: President of the United States Barack Obama and President of Argentina Cristina Fernández in 2009 Español: Cristina Fernández junto al presidente de EE.UU. Barack Obama (Photo credit: Wikipedia)

Nestor Kirchner made no bones about his plans for the future; he would use his time in the Pink House to pile up enough power and money to ensure that, should an ungrateful populace ask him to step aside for a while, he would be able to withstand the attacks of his enemies, watch his successors make a mess of things, and then return in triumph in order to sort them out. Though his premature death removed Néstor from the scene, his widow soon decided that as far as she was concerned it would be business as usual. Like her late husband, Cristina has concentrated on strengthening her own power base by siphoning money from the rest of the country into political organizations such as La Cámpora and the pockets of cronies that are more than willing to do her bidding.

But now it is all crumbling. The economy is sliding rapidly toward yet another hair-raising crisis that will impoverish millions of people. And to make matters far worse, stories about how Néstor and others systematically looted the country are finally beginning to have an impact. As long as the economic outlook seems promising, politicians can get away with just about anything, but when clouds gather on the horizon, an infuriated citizenry starts calling them to account.

Has that particular moment already arrived? Cristina and her minions evidently fear that it has. To judge from the hysterical statements that are being made by the president’s supporters, the government is panic-stricken. Instead of trying to deny the accusations that are being levelled against Néstor and, by extension, his widow and the picturesque assortment of characters that greatly benefitted from their patronage, they are doing their furious best to discredit the journalist Jorge Lanata, whose Sunday television programme has acquired more political importance than any parliamentary session, and, needless to say, the Clarín media group.
For years now the Kirchnerites have been painting Clarín’s CEO, an accountant named Héctor Magnetto, as an evil genius, an Argentine version of the incredibly powerful, but strangely elusive, enemy of the Party, Emmanuel Goldstein, in George Orwell’s dystopian novel 1984, who is allegedly behind each and every setback suffered by Cristina. They are still at it. For those who take Kirchnerite propaganda seriously, Magnetto, a puppeteer so horrendously clever that they assume he is fully capable of manipulating not just the Argentine press but also the governments of the US and the European Union, as well as the United Nations, the Organization of American States and Wall Street, is behind all the nasty things that keep happening to them. Such paranoia is ridiculous, but then there is not much else Cristina’s defenders can come up with to deflect the allegations that are raining upon her head.

Saving Cristina from the increasing number of people who want her and her friends to face the music is not merely the government’s priority. It has become its sole objective. Everything must be subordinated to it. The onslaught against Clarín and other newspapers has intensified because the Kirchnerites desperately want to silence their critics. After failing to buy the country’s biggest media group, the government pushed through legislation designed to cripple it and then tried to starve it of funds by telling retailers to withdraw their advertising.

Now, if rumours that are going the rounds are to be believed, it is plotting to take it over by force, perhaps by sending in squads of armed La Cámpora heavies to kick out the owners, much as it did when Cristina restored what she called the nation’s “hydrocarboniferous sovereignty” by ejecting the Spaniards from their offices in YPF, after which most fled to Uruguay. In an effort to thwart her, Buenos Aires City Mayor Mauricio Macri surprised many by decreeing that in his jurisdiction at least, press freedom, as guaranteed by the Constitution, would continue to prevail.

When the courts blocked measures that had been taken by the government to rid the country of Clarín, Cristina decided that the time had come for her to knock the judicial system into shape. Had it not been for the legal obstacles that prevented her from breaking up the group as speedily as she had hoped, it would never have occurred to her that it would be a splendid idea to let voters have a hand in choosing who should be judges, thereby “democratizing” the judiciary. Though Cristina may not be aware of it, that particular strategy could prove a bit risky. Like their counterparts in the rest of the world, only more so, Argentine judges tend to be influenced by the changes in political fashions. By the time elections are held, much of the population could be in an extremely vengeful mood. If that is the case, the next crop of judges would in all likelihood be men and women committed to putting those found guilty of helping themselves to large amounts of public money behind bars, in a common prison, for the rest of their natural lives. Needless to say, that it is not exactly what the Kirchnerites have in mind when they say they want the judicial system to be more democratic.