Chaos in Argentina

[tw]

juju2112 quoted yahoo

Says Eduardo Duhalde, Argentina's fifth president in the last two weeks, " This is the moment of truth: Argentina is worn out. The country is broke,'' he said in a speech to Congress after swearing in. The current economic model, "destroyed our middle class, destroyed our industries and pulverized our workforce.''

At this point, if your news sources have been responsible, then you are familiar, or at least heard of, a concept called 'currency board'. It is used by many other nations, such as Hong Kong, to solve economic problems. But it assumes the economy will maintain its economic productivity. Argentina was S America's strongest economy. But things went bad. Instead of freeing their currency to compensate for their economic weaknesses, previous administrations instead played money games. They tried to fix the economy using tricks such as economic stimulus (attn George Jr) rather than address the reasons for their economic downturn.

A currency board solved many of Argentina's early financial stability problems with inflation and wide flucutations in currency value. One reason for its success was because government could not (or at least should not have) release more currency than was held in US dollars. But when an economy becomes less innovative - when productivity gains are not realized - then a currency devaluation should be the result. Instead, Argentinian leaders held their currency fixed to the dollar - much like a gold standard. Those mistakes made years ago are what resulted in these above pictures.

Once early problems were solved, then Argentina should have released currency to free market forces. Now it is too late. Argentina just defaulted on $155billion today. Worse will happen since they are now in uncharted economic waters. This has never happened to a country using a currency board.

In economics, the currency board is still a major curiousity to economists. Many countries in the world use the concept to tie their currency to the US dollar, British Pound, or German Mark.