Tuesday, January 12, 2010

Constitutional Crisis in Argentina,

From http://globaleconomicanalysis.blogspot.com

Constitutional Crisis in Argentina, President Threatens to Take Over Central Bank; Potential Latin America "Cascade Effect"

Argentina President Cristina Kirchner has attempted to seize control of the central bank. Kirchner fired central banker Martín Redrado for his refusal to hand over $6.6 billion in bank reserves. The matter is now headed for the Argentinean courts.

Please consider the Constitutional Showdown in Argentina.

Argentine President Cristina Kirchner's firing of the country's central bank president last Wednesday has provoked a constitutional crisis, not unlike the one that rocked Honduras last summer.

Mrs. Kirchner's insistence that the central bank's assets should be at her disposal is noteworthy. It reflects a primitive view, not unknown even in the U.S., that the role of a central bank is to print money for the government's use. Yet it is nonetheless surprising that even after the nation has suffered so much inflationary agony, it is still possible for an Argentine politician to pursue this line of reasoning without risk of being tarred and feathered.

Already unpopular for her authoritarian style, Mrs. Kirchner would seem to be skating on precariously thin ice. One opposition senator has pledged that if Mrs. Kirchner does not back down, he will begin impeachment proceedings.

The president says she wants the money to pay back foreign creditors. She could pay them with funds that are already at the treasury, but she has other ideas for that money.

Argentina Set For Inflationary Explosion

Argentina is already suffering from a 17% reported rate of inflation. Rest assured if 17% is the reported rate, the real rate is likely much higher.

Kirchner not only wants the $6.6 billion in bank reserves, she also wants "easy money", otherwise known as lower interest rates. If Kirchner gets her way, and perhaps even if she doesn't, Argentina is going to explode.

In South America, Venezuela is already in the process of blowing up. Please see Chavez Threatens to Seize Businesses, Devalues Currency by 50%; Chavez vs. Obama, Parallels Greater Than You Think! for details.

Cascade Effect

Regarding Venezuela, my friend "BC" writes ...

While the story got little press in the US (not sure about the EU), the action could be one that starts a cascading effect in Latin America where China is frantically acting to establish relations in order to secure energy and grain supplies.

And water shortages and rising energy costs risk a breakdown of internal distribution systems at the periphery, restrictions to transoceanic transport, increasing scale of mass migration and ethnic-racial conflict, and severe disruptions to trade flows and credits, as well as deteriorating trade and diplomatic relations across regions.

Textbook case.

Loans to two countries are now at huge risk. European banks have more exposure than US banks to emerging markets and Latin America.

Mike "Mish" Shedlock


Patrick said...

In my opinion, breakdowns like this in the soveriegn debt of many countries will help the USD rise significantly, and there will be one last opportunity for Yanquis to buy up real estate abroad at a decent price, before the USD pyramid falls as well. Welcome to the breakdown of debt-based society, a.k.a. "society as we know it".

Anonymous said...

It never ends for you guys! Scoundrels and idiots.

Good luck, Ferfal.

But we may be heading there in the U.S.!


EN said...

Watch Greece. When it goes, and the ECB is leaning towards no bailout, then it's a matter of time for Spain, Portugal, and Ireland. Combined with Argentina, Venezuela (and a few other formerly stable countries), we have the beginnings of world depression. The US is an importer. We export very little and industry isn't considered politically correct. These attitudes are going to make the coming train wreck in the US all that much harder.

Anonymous said...

All in the worldwide race to devalue currencies, who will do so sooner, faster and who will struggle? Isn't that the basis of the new U.S. Dollar carry trade? No government using debt and fiat money can resist currency devaluation.

"...where China is frantically acting to establish relations..."

It's difficult for me to imagine China being frantic about anything.

The last cause said...

Ferfal, when you read/experience such a crisis, what is the first and second thing you think of to do?

By "repay foreign creditors" I assume that means "turn presses onto maximum and inflate away the debt"?

FerFAL said...

You're right EN, lack of serious local production will be a problem in US. It will also be a window of oportunity after the crisis, replacing those cheap imports. But until that happens, Americans will feel it if imports stop rolling in.


Anonymous said...

FerFal said:
"Yet it is nonetheless surprising that even after the nation has suffered so much inflationary agony, it is still possible for an Argentine politician to pursue this line of reasoning without risk of being tarred and feathered."

The 'pres' here is going after retirement money as Argentina did and few American know about it or are saying a word. They are clueless and spindless here as well. People are mostly the same anywhere and your current experience is a study in how Americans may react in the future and even after things have become seriously bad. I'm not sure there will be a future for this country, a return to it's roots if folks in general are this dumb and gutless. I'm closer to making a commitment to head Sweden or even Iceland. At least in Iceland the people have got the guts and are telling the bankers they will not pay for Bankster's gambling debts... They are on the verge of a revolution. One Icelander has already invited this Berserker.