The Argentine Peso’s Death Spiral


PREMO Member
The idea that easy money can substitute as a fix for underlying structural problems wasn’t born in Argentina. Barack Obama and Federal Reserve Chairs Ben Bernanke and Janet Yellen tried it for eight years after the 2008 financial crisis. Yet U.S. growth didn’t pick up until the Trump administration began to cut taxes and reverse an antibusiness bias.

It’s astounding that Argentina would administer something similar to the Obama-Bernanke elixir, and not only because the U.S. dollar’s reserve-currency status is a unique privilege. Argentina has a terrible monetary reputation that can be overcome only by demonstrating a firm commitment to price stability. Germany learned this lesson in the period between World War I and World War II. Argentina keeps reliving it.

The peso is down more than 15% against the dollar in the past three weeks. The central bank has responded by hiking overnight interest rates to 40%. Since April 19 it has sold around $8 billion in international reserves in a futile attempt to reverse the slide. Credit-default swaps spiked last week.