Suffering the Profanity of Plentiful Cheap Money
Suffering the Profanity of Plentiful Cheap Moneyfor Economic Prism
What if the savings in your bank account lost 55 percent of its value over the last 12 months? Would you be somewhat peeved? Would you transfer some of your savings to another currency?
That was the favored approach in Argentina – where the official inflation rate’s 55 percent. But no more. On September 2, President Mauricio Macri resorted to capital controls to preserve the central bank’s foreign exchange reserves and prop up the peso. What gives?
Just fifteen months ago Macri secured the biggest bailout in the International Monetary Fund’s history. Now Argentina’s delaying payment to its creditors and is rapidly approaching what will be its third sovereign default this century. On top of that, Macri’s Peronist rival Alberto Fernández will likely take his job come election day in October.
Alas, for Macri and his countrymen, a painful lesson is being exacted. You can’t solve a debt problem with more debt. Eventually the currency buckles and you’re left with two poisons to pick from: inflation or default. With Macri’s latest capital controls scheme he’s choosing to take swigs of both.
Make of Argentina’s woes what you will. Central bankers in the United States are also guilty of programs of mass money debasement. They may have a bigger economy to better mask their malice. But despite what the MMT delusionals say the day of reckoning always arrives – and always at the worst possible time.
Indeed, the U.S. dollar hasn’t lost 55 percent of its value over the last 12 months. However, according to the Bureau of Labor Statistics’ own inflation calculator, the dollar’s lost 55 percent of its value since 1988. In other words, it takes $1 to purchase what $0.45 could buy during President Reagan’s last year in office.
No doubt, a 55 percent loss spread out over 30 years is much better than a rapid devaluation over 12 months. But that doesn’t mean it isn’t highway robbery. And we all know the unofficially price inflation rate is much, much higher. What to make of it?
To answer this question – and many others – we’ll take a gander back nearly 300 years…to a near forgotten episode of mischief and mayhem…
William Wood was an English retailer of iron goods. Some years were better for business than others. But somewhere in his dealings he, like Lockheed Martin and many others, stumbled upon a very important secret. That having friends in high places makes all the difference. Thus, in 1722, the English Parliament granted him a patent to coin copper money for use in Ireland.