I am by no means a macroeconomist, but I had thought there was a general consensus that lowering interest rates made money cheaper, thereby increasing demand (borrowing, spending, investing), thereby fueling demand-pull inflation. Argentina’s finance minister, however, does not see it this way. He’s proposing that using the government’s reserves to lower interest rates will decrease inflation.
Huh?
I imagine what Amado Boudou is proposing is that Argentina’s current risk is one of cost-push inflation: That is, the supply of goods on the market is so low in relation to demand that their cost is rising (think the 1970s energy crisis) and taking inflation along with it. So by lowering interest rates, you encourage investment, increase production, increase supply to meet demand, and inflation declines.
Except, the current global economic crisis is one of plummeting demand. No one in their right mind would argue that the real problem with the world’s economy is that everyone wants to buy stuff and there’s just not enough of it. Everyone from China to the United States to the EU has taken measures to increase demand, interest rate cuts among them.
If Argentina uses its reserves to cut interest rates, it will help fuel demand, which might be desirable in this economic climate. But let’s be clear: It would also almost definitely increase inflation, which is already estimated by independent sources to be in the high double digits.
The Nation has a long, wonky, wonderful article on Mexican maize cultivation, the effects of NAFTA, and the dangers of genetically-modified seeds. Author Peter Canby backs up his excellent writing with piles and piles of meticulous research. Not to be missed. [link, via SM] (Image from Joel Penner.)
Cuban dissident Guillermo Farinas ended his hunger strike yesterday after 134 days. Farinas decided to end his strike after the Cuban government said it would release political prisoners rounded up in the "Black Spring" crackdown of 2003. Get well soon. [link]
The Uruguayan selection, which has made it to the quarter finals of the World Cup, just received a shipment of half a ton of fine cuts of beef for the mother of all asados in preparation for a contest against Ghana on Friday: "450 kilos of lomo, 200 of entrecot, 75 of vacío, 75 of colita de cuadril, 150 of ojo de bife and 50 kg of picaña." [link]
Hitmen have assassinated the PRI candidate for governor of Tamaulipas State, Rodolfo Torre Cantú. Torre was gunned down along with six others at about 10:30 this morning on a highway on the way to a campaign event. Drug mafias are assumed to be responsible. [link]
From the days when coups were something of a regional sport, new documents detail a famous British ballerina's role in a plot to topple the government of Panama. The plan was to use her yacht to gather men and arms, then "land somewhere and collect in the hills." It didn't work. [link]
Mexico's Attorney General's Office has posted on its web site irrefutable evidence that gold-plated AR-15s and diamond-studded pistol grips are not nearly as cool-looking as they sound. The deadly knick-knack collection is said to belong to Valencia Cartel leader El Lobo. [link]
Two Brazilian ranchers were sentenced to 30 years in prison apiece for ordering the killing of an environmentalist nun: "Prosecutors said the pair offered to pay a gunman $25,000 to kill the 73-year-old [Dorothy] Stang because she had prevented them from stealing a piece of land that the government had granted to a group of poor farmers." [link]
This video of a kidnapping and car chase in Mexico is notable mainly for the bad-assitude of the TV journalists who were on this like white on rice. Well done, gentlemen.
The Economist takes a peak at the Mockus phenomenon in Colombia: "His moustacheless beard gives him the air of a Baltic pastor... He is financing his campaign with a bank overdraft. His supporters rely on Facebook and make their own posters; street vendors sell unofficial campaign T-shirts." [link]
Some cruise lines will cease traveling to Antarctica after this cruise season, as a ban on the use and carriage of heavy fuel oil goes into effect next year. The ban came after a 2007 incident when a Gap Adventures ship got punctured by ice and sank, causing a mess. [link]
The Nation has a long, wonky, wonderful article on Mexican maize cultivation, the effects of NAFTA, and the dangers of genetically-modified seeds. Author Peter Canby backs up his excellent writing with piles and piles of meticulous research. Not to be missed. [link, via SM] (Image from Joel Penner.)
Cuban dissident Guillermo Farinas ended his hunger strike yesterday after 134 days. Farinas decided to end his strike after the Cuban government said it would release political prisoners rounded up in the "Black Spring" crackdown of 2003. Get well soon. [link]
The Uruguayan selection, which has made it to the quarter finals of the World Cup, just received a shipment of half a ton of fine cuts of beef for the mother of all asados in preparation for a contest against Ghana on Friday: "450 kilos of lomo, 200 of entrecot, 75 of vacío, 75 of colita de cuadril, 150 of ojo de bife and 50 kg of picaña." [link]
Hitmen have assassinated the PRI candidate for governor of Tamaulipas State, Rodolfo Torre Cantú. Torre was gunned down along with six others at about 10:30 this morning on a highway on the way to a campaign event. Drug mafias are assumed to be responsible. [link]
From the days when coups were something of a regional sport, new documents detail a famous British ballerina's role in a plot to topple the government of Panama. The plan was to use her yacht to gather men and arms, then "land somewhere and collect in the hills." It didn't work. [link]
Mexico's Attorney General's Office has posted on its web site irrefutable evidence that gold-plated AR-15s and diamond-studded pistol grips are not nearly as cool-looking as they sound. The deadly knick-knack collection is said to belong to Valencia Cartel leader El Lobo. [link]
Two Brazilian ranchers were sentenced to 30 years in prison apiece for ordering the killing of an environmentalist nun: "Prosecutors said the pair offered to pay a gunman $25,000 to kill the 73-year-old [Dorothy] Stang because she had prevented them from stealing a piece of land that the government had granted to a group of poor farmers." [link]
The Economist takes a peak at the Mockus phenomenon in Colombia: "His moustacheless beard gives him the air of a Baltic pastor... He is financing his campaign with a bank overdraft. His supporters rely on Facebook and make their own posters; street vendors sell unofficial campaign T-shirts." [link]
Some cruise lines will cease traveling to Antarctica after this cruise season, as a ban on the use and carriage of heavy fuel oil goes into effect next year. The ban came after a 2007 incident when a Gap Adventures ship got punctured by ice and sank, causing a mess. [link]
Voodoo economics
I am by no means a macroeconomist, but I had thought there was a general consensus that lowering interest rates made money cheaper, thereby increasing demand (borrowing, spending, investing), thereby fueling demand-pull inflation. Argentina’s finance minister, however, does not see it this way. He’s proposing that using the government’s reserves to lower interest rates will decrease inflation.
Huh?
I imagine what Amado Boudou is proposing is that Argentina’s current risk is one of cost-push inflation: That is, the supply of goods on the market is so low in relation to demand that their cost is rising (think the 1970s energy crisis) and taking inflation along with it. So by lowering interest rates, you encourage investment, increase production, increase supply to meet demand, and inflation declines.
Except, the current global economic crisis is one of plummeting demand. No one in their right mind would argue that the real problem with the world’s economy is that everyone wants to buy stuff and there’s just not enough of it. Everyone from China to the United States to the EU has taken measures to increase demand, interest rate cuts among them.
If Argentina uses its reserves to cut interest rates, it will help fuel demand, which might be desirable in this economic climate. But let’s be clear: It would also almost definitely increase inflation, which is already estimated by independent sources to be in the high double digits.
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