What is the cause of inflation? Did Argentina and Venezuela not have out of control inflation?

[nec209]

What is the cause of inflation? Did Argentina and Venezuela not have out of control inflation?

I thought countries like Argentina and Venezuela had out of control inflation? What cause the inflation in Argentina and Venezuela.
 

I hear today there still high inflation in Argentina and Venezuela and it is not coming down but getting worse.
 

[exchemist]

38 minutes ago, nec209 said:

What is the cause of inflation? Did Argentina and Venezuela not have out of control inflation?

I thought countries like Argentina and Venezuela had out of control inflation? What cause the inflation in Argentina and Venezuela.
 

I hear today there still high inflation in Argentina and Venezuela and it is not coming down but getting worse.
 

This article gives you some background on the economic situation in Argentina: https://www.bbc.co.uk/news/articles/cm55yv0g0veo

The country has for a long time been spending beyond its means and printing money to finance that, while trying to maintain a fixed exchange rate with the US dollar. 

Venezuela is just disastrously badly run, with rampant corruption, inefficiency and capricious decisions by government. Pointless to try to analyse it rationally.

[swansont]

1 hour ago, nec209 said:

Did Argentina and Venezuela not have out of control inflation?

It’s expected that easily-found data should be looked by the person starting the inquiry. Expecting others to dig it up is lazy.

AFAICT Argentina has had pretty high inflation for several years. Go find the numbers.

 

[Externet]

What is the cause of inflation?  The ones that work little or nothing are always in opportunist mode to have it easy doing the least effort.  Not in work mode, that takes effort.   Politicians are experts in moving their tongues but never had a clue on how to reverse inflation.

[exchemist]

20 minutes ago, Externet said:

What is the cause of inflation?  The ones that work little or nothing are always in opportunist mode to have it easy doing the least effort.  Not in work mode, that takes effort.   Politicians are experts in moving their tongues but never had a clue on how to reverse inflation.

That's a bit too glib. Politicians have known for decades how to control inflation: Be aware if you are "printing money" and use the central bank interest rate to damp it out. Geoffrey Howe and Thatcher did that in the UK back in the early 80s. 

[DeepBlueSouth]

3 hours ago, swansont said:

It’s expected that easily-found data should be looked by the person starting the inquiry. Expecting others to dig it up is lazy.

AFAICT Argentina has had pretty high inflation for several years. Go find the numbers.

 

exactly, seems like some people start topics on here just to have the floor on something they wish to make a point on, and to establish the agenda of that post; under the guise of wanting to understand something better.

Edited December 24, 2024 by DeepBlueSouth

[John Cuthber]

Is inflation what happens when people start to realise that money is intrinsically worthless?

[nec209]

You said there is lot of corruption in Argentina and Venezuela can you elaborate on that?

[exchemist]

31 minutes ago, nec209 said:

You said there is lot of corruption in Argentina and Venezuela can you elaborate on that?

Who did?

[iNow]

2 hours ago, exchemist said:

Who did?

Looks like you did 

On 12/24/2024 at 12:11 PM, exchemist said:

Venezuela is just disastrously badly run, with rampant corruption

At least for Venezuela. 

Edited December 29, 2024 by iNow

[swansont]

3 hours ago, nec209 said:

You said there is lot of corruption in Argentina and Venezuela can you elaborate on that?

https://letmegooglethat.com/?q=venezuela+corruption

[exchemist]

4 hours ago, iNow said:

Looks like you did 

At least for Venezuela. 

Quite. Nothing about Argentina. 

[Sensei]

There is also corruption in the US and Western countries, but in white gloves. Not so obscure with money from hand to hand. Lobbyists come in, offer and give money for election campaigns. Millions or billions (in the case of presidential elections) that go for advertisements and pay all the bills of the team working on it (just hire there families and friends there). Of course, they expect the politicians they support to vote in line with the companies and individuals who paid for it, or a stream of money will vanish. Lobbyists come to politicians and tell them behind closed doors that the companies or industries they represent will hire their family members and/or friends. Where do former politicians who don't get elected retire? They are employed in these companies for the next few years until they are re-elected.

Eddie Murphy made a movie, comedy, The Distinguished Gentleman, showing how to do it in white gloves:

https://www.imdb.com/title/tt0104114/

Pointing out that there is corruption in Venezuela or Argentina is silly..

 

On 12/24/2024 at 6:28 PM, nec209 said:

What is the cause of inflation?

It depends on country.

If a country has taken a lot of foreign loans, or has a lot of demand for foreign goods, then it must acquire foreign currency. If for some reason it will have difficulties with this then the problems begin.. A country can sell locally produced things on foreign markets instead of the domestic market (to get foreign currency for loans), lowering the supply with the same demand will raise the price of the product. Poorly developed countries do so with unprocessed agricultural products that have poor margins. The local population is struggling to get increasingly expensive food. The riots are beginning and the fight for raises (especially by government employees, pensioners, disability pensioners, people paid by social security). Politicians are afraid of messing with them because they are a significant group of the population that can easily not elect them at the next election, so politicians agree to increases (in local currency) that further fuel inflation and increase the country's troubles. Foreign investors sell off the local currency, sell local stocks and evacuate to save their money (which is easy peasy with Internet connection, just a few clicks), the exchange rate for the dollar and euro rise, making it even harder for the government to repay foreign loans, and the spiral begins.

Venezuela is a large exporter of unprocessed oil so it is very dependent on the world oil exchange rate, over which it has no influence. At the same time, it has very large needs for foreign currency, which it uses to pay for social welfare expenses for the public.

The evacuation of foreign investors from Russia after the attack on Ukraine can be seen in this chart:

Edited December 30, 2024 by Sensei

[exchemist]

2 hours ago, Sensei said:

There is also corruption in the US and Western countries, but in white gloves. Not so obscure with money from hand to hand. Lobbyists come in, offer and give money for election campaigns. Millions or billions (in the case of presidential elections) that go for advertisements and pay all the bills of the team working on it (just hire there families and friends there). Of course, they expect the politicians they support to vote in line with the companies and individuals who paid for it, or a stream of money will vanish. Lobbyists come to politicians and tell them behind closed doors that the companies or industries they represent will hire their family members and/or friends. Where do former politicians who don't get elected retire? They are employed in these companies for the next few years until they are re-elected.

Eddie Murphy made a movie, comedy, The Distinguished Gentleman, showing how to do it in white gloves:

https://www.imdb.com/title/tt0104114/

Pointing out that there is corruption in Venezuela or Argentina is silly..

 

It depends on country.

If a country has taken a lot of foreign loans, or has a lot of demand for foreign goods, then it must acquire foreign currency. If for some reason it will have difficulties with this then the problems begin.. A country can sell locally produced things on foreign markets instead of the domestic market (to get foreign currency for loans), lowering the supply with the same demand will raise the price of the product. Poorly developed countries do so with unprocessed agricultural products that have poor margins. The local population is struggling to get increasingly expensive food. The riots are beginning and the fight for raises (especially by government employees, pensioners, disability pensioners, people paid by social security). Politicians are afraid of messing with them because they are a significant group of the population that can easily not elect them at the next election, so politicians agree to increases (in local currency) that further fuel inflation and increase the country's troubles. Foreign investors sell off the local currency, sell local stocks and evacuate to save their money (which is easy peasy with Internet connection, just a few clicks), the exchange rate for the dollar and euro rise, making it even harder for the government to repay foreign loans, and the spiral begins.

Venezuela is a large exporter of unprocessed oil so it is very dependent on the world oil exchange rate, over which it has no influence. At the same time, it has very large needs for foreign currency, which it uses to pay for social welfare expenses for the public.

The evacuation of foreign investors from Russia after the attack on Ukraine can be seen in this chart:

No, it is not silly to point out the effects of corruption in places like Venezuela. The level of corruption in such countries is of an entirely different order of magnitude from that in mature industrialised countries. In places where the average person, or business, cannot trust the law to be applied more or less fairly, cannot trust accounting standards to be applied and cannot trust government officials and regulatory agencies to do their jobs without bribery, it is very hard for economic development to take place at all efficiently. 

[iNow]

4 hours ago, exchemist said:

In places where the average person, or business, cannot trust the law to be applied more or less fairly, cannot trust accounting standards to be applied and cannot trust government officials and regulatory agencies to do their jobs without bribery, it is very hard for economic development to take place

Sounds to me like a forecast for what to expect in the US these next 4 years 

[exchemist]

8 minutes ago, iNow said:

Sounds to me like a forecast for what to expect in the US these next 4 years 

That actually occurred to me while I was typing. But I thought I’d better leave it to an American to articulate the sentiment🙂.

In fact, Venezuela may also be an example of the famous “resource curse”. https://en.wikipedia.org/wiki/Resource_curse

[KJW]

4 hours ago, exchemist said:

https://en.wikipedia.org/wiki/Resource_curse

I thought the section https://en.wikipedia.org/wiki/Resource_curse#Examples_in_biology_and_ecology to be interesting. Whereas one might think that the resource curse is an absurdity of human nature (or of the capitalist system), the appearance of something similar in natural systems seems to indicate that the cause is more fundamental.

 

[tmdarkmatter]

I have lived in Argentina for many years and I can tell you of several very particular circumstances for Argentina:

1. During the 90s, president Carlos Menem established the famous "uno a uno" which means that one dollar was worth one peso and this exchange rate was maintained until December 2001. The problem is that at the beginning this was stable but during the year 2000 and 2001 with President De la Rua a lot of Argentinians converted their pesos into dollars and opened bank accounts in dollars instead of pesos. This created an excess of pesos and a shortness of dollars, creating a crisis that finally, in December 2001, forced the government to freeze all bank accounts in dollars for at least 6 months. Then they devaluated the peso from one dollar one peso to one dollar three pesos and they devaluated these bank accounts converting them first to pesos and than devaluating them. When people finally had access to their original dollars, their money was now worth only one third. This maneuver somehow fixed the debt of Argentina, but this created a huge distrust since then so Argentinians never again put their money in the bank, at least not more than for example 1000 dollars. Instead, they have all their money in cash dollars somewhere hidden at home or in a safe-deposit box. So this is some kind of cultural thing now that increases the demand for dollars and always makes it difficult for a new government to control inflation. Maybe there are more cash dollars in Argentina than in the U.S.! I would estimate some 500 billion US dollars in cash in Argentina.

2. The second problem is that people in Argentina on purpose do not have access to foreign investments, they cannot open a bank account and for example buy stocks at Wall Street. Instead, if you ask them, the best investment you can have is "to buy dollars". So, Argentinians are always expecting the value of the dollar to increase so their money is somehow "working". This is quite similar to the Bitcoin actually, where everybody is buying only because they believe that the value will increase, but there is actually no reason why the value should increase, but the government for many years was like forced to print more money to "increase" the value of the dollar, but what they actually did is only decreasing the value of the peso. But a lot of people do not realize that.

3. Another important point is that all properties in Argentina are for sale only in dollars. This has to do with the circumstance that sellers would never trust in the local currency and as they do not want to lose money, they all want to sell in dollars. You must understand that for example if you offer your home for sale for 100 million pesos (100k dollars) it´s possible that while you are in the middle of the transaction (which usually lasts 3 months) the peso can drop and at the end when you receive your 100 million, these might only be worth 60k dollars. Anyway, properties in Argentina are usually highly overvalued.

But it is important to note that Javier Milei now ended this crazy inflation period and since last year the peso is quite stable. But instead there are now a lot of people suffering and even starving because they are no longer receiving "help" from the government.

 

Please ask me further questions about Argentina. I have lived there between 1997 and 2017 and real experiences are sometimes much better than books or can complement them.

Edited December 30, 2024 by tmdarkmatter