Inflation is a monetary phenomenonsaid Milton Friedman.
“But hyperinflation is always and everywhere a political phenomenon”Conservative historian Niall Ferguson said.
In his detailed book The Triumph of Money: How Finance Moves the WorldFerguson concludes that the inflationary spark that accelerates a hypermarket cannot occur without a malfunction in government economic policy.
Isn’t that what has been seen in history? And doesn’t something like this happen in Argentina today?
The historian cites the case of Germany, which in these days is celebrating a centenary of the tragedy that struck the Weimar Republic: the 1923 hypermarket was a combination of two factors such as the internal paralysis of a government (the German one) and the pressure of international creditors (France in particular) to pay the foreign debt for reparations for the first war. The corollary of these converging forces, reflected in Erich Maria Remarque’s masterful novel The Black Obelisk, was that 20,000 million banknotes per day circulated on German soil to manage the conflict.
A column published in Clarín this week by economist Marina Dal Poggetto somewhat confirms this idea of Ferguson’s, noting that Argentina can build its hyperinflation.
Dal Poggetto has been warning him for a year. At the time, he clarified that inflationary acceleration may “not be the magnitude we experienced in the late 1980s, when the average inflation rate reached nearly 3,000%. but a new regime change that will bring inflation above three figures if the horizon of economic policy is not broadened”. Today Dal Poggetto supports his opinion. A well-known economist, hearing from businessmen, said this week that the likelihood of hyperinflation in Argentina has increased in recent months. No event has zero probability in this country, some businessmen think.
The important thing about the proposals of Ferguson and Dal Poggetto, it should be specified, is not that the definition of hyperinflation is subordinated to a calculation of the quantity of money or currency which triggers the flash or the fall in the demand for money which can anticipates through an orthodox or heterodox scientific model.
“A hyper requires there to be a power vacuum, becoming completely out of control”explains, a EconomicJosé Luis Machinea, former president of the Central Bank until March 1989.
The events leading up to that crisis occurred in two ways, as Ernest Hemingway’s novel says: first gradually and then suddenly. In January, inflation was 8.9%. February 9.6%. March 17%. April 33.4%.
One week after INDEC published 33.4% in April, on Friday May 5, 1989, Carlos Menem won the presidential election. A few days later, progress was made on the transfer of power from Raúl Alfonsín to Menem.
The last time such a figure was recorded for that month was March 1976, with the CPI giving 38% monthly and the wholesale trade 54%.
Juan Carlos Pugliese, Alfonsín’s economy minister who took office in April 1989, replacing Juan Sourrouille, received “17% of March”. I did not contribute your sentence “I spoke to them from the heart and they answered me with their pockets” after an announcement of measures, and from 17% to 33.4%.
The hyper has arrived.
Between the banks, daily rates of 4.75% were paid, there were “fair prices” for vegetables, there were no dollars because the drought hit the countryside and because of the uncertainty aroused by an eclectic candidate like Menem.
“A large part of the increases that occurred in the last days of April, in statistical terms, will be transferred to May,” Pablo Gerchunoff, chief adviser to the economy ministry, told reporters after the 33.4% increase in April.
In the midst of the maelstrom and destruction, the Minister of Economy has launched a price freeze. “You have to put an end to that collective anxiety that is everyday observations.”
The political order in Germany began to unravel 100 years ago when the Germans defaulted on a debt to France and the French seized a profit-making coal mine and paid off. It is political upheavals that cause rapid reactions in the markets much faster than models and theories predict. And a hyper can make a government or an administration disappear.
What risk event does Argentina face in this regard?
Machinea does not hesitate. “A default with the IMF would not be good news because it would accelerate the power shortage.”
Source: Clarin
