Argentina: The Myth of a Century of Decline

Author: Eugenio Diaz-Bonilla  ·  February 27th, 2014  ·  RGE EconoMonitor

On February 15 The Economist printed an interesting article about Argentina: “The tragedy of Argentina. A century of decline” with the subtitle, “One hundred years ago Argentina was the future. What went wrong?” As usual in that magazine, it is a nicely written article. But it is not, in my view, an accurate interpretation of Argentina’s history. I had the opportunity to debate at length Alan Beattie’s erroneous comparison between Argentina and the USA in these pages (starting with this blog http://www.economonitor.com/blog/2009/08/usa-argentina-and-alan-beattie-wrong-starting-point/). The Economist’s article is much more nuanced but maintains a common view that Argentina’s history is a long decline since it was a very important country at the beginning of the 1900s to the less promising current times.  The narrative by The Economist ends with a very useful suggestion: “No other country came so close to joining the rich world, only to slip back. Understanding why is the first step to a better future.”

The “hundred-year decline” is an enduring myth in Argentina as well, particularly in the case of that minority that seem to cherish the times in which Argentina was an agrarian country with a very restricted democracy or not democracy at all.  Therefore, it is indeed crucial for Argentina’s future prospects to have a correct diagnostic of the economic evolution of the country during the last century and, then, to try to identify the reasons.

Below I will try to show that instead of a “century decline,” what characterizes Argentina’s economic evolution as compared to other countries is that it suffered a deep economic collapse from the mid 1970s to the end of the 1980s (in what follows, data is from the Maddison Project. http://www.ggdc.net/maddison/maddison-project/data.htm).

In Some Ways, It’s Looking Like 1999 in the Stock Market

Date: 30-03-2014
Source: The New York Times

Characters from Candy Crush Saga, the game from King Digital, greeted the company’s initial public offering at the New York Stock Exchange last week. The shares dropped 16 percent on their first day of trading.

Maybe not the entire stock market, but consider this: Airbnb, an Internet middleman that connects travelers and people with rooms to rent, was recently valued at more than $10 billion.

That’s an impressive price tag for a company that’s “a lot like a hotel chain without the hotels,” as Jay Ritter, a business professor at the University of Florida, succinctly put it. Airbnb has few fixed costs and plenty of room to grow, he said, and it could end up dominating its field. Still, at $10 billion, Airbnb would be worth more than the entire Hyatt hotel chain.

The number startled me, yet when I looked into it, I found that it’s not wildly out of line with prices that other Internet companies have fetched lately. Just last week, King Digital Entertainment, which makes Candy Crush Saga, an online video game, went public at a valuation of more than $7 billion. It’s a great video game, friends and colleagues tell me. As Gail Collins wrote in December: “It’s about matching little colored thingies on your iPad or phone.” Fun! But $7 billion? Really?

Delivering the Eurozone ‘Consistent Trinity’

Marco Buti, Maria Demertzis, João Nogueira Martins (all from European Commission), 30 March 2014

Although progress has been made on resolving the Eurozone crisis – vulnerable countries have reduced their current-account deficits and implemented some reforms – more still needs to be done. This column argues for a ‘consistent trinity’ of policies: structural reforms within countries, more symmetric macroeconomic adjustment across countries, and a banking union for the Eurozone.

As argued in an earlier commentary, the financial crisis exposed important economic inconsistencies in the way that EMU operated.¹ Although progress has been made, the reality is that more needs to be done. A number of countries still need to consolidate their public finances further, and also implement structural reforms to promote growth and sustain satisfactory welfare systems. At the same time, there is a need for vulnerable countries to ensure consistency between regaining competitiveness and the sustainability of private and public debts. Finally, overcoming financial fragmentation is a sine qua non for promoting financial stability while ensuring the effective flow of funds across the monetary union. The institutional/policy mix that addresses these problems comes in the form of a ‘consistent trinity’ that involves: (i) deep fiscal and structural reforms within countries, (ii) a rotation of demand that contributes to a more symmetric adjustment across countries, and (iii) a banking union at the level of the Eurozone as a whole.

The Commission is delivering its part of the consistent trinity. As the European Parliament, Council, and Commission reach important agreements on the banking union, the Commission has been monitoring progress made by countries in terms of the two first aspects of the consistent trinity.

»Ich hatte den Eindruck, jetzt drehen alle durch«

29.03.2014 | 18:12 |  (Die Presse)

Wie geht es dem Wirtschaftsjournalismus im Spannungsfeld zwischen Bad Bank und Bad News?ORF-Wirtschaftschef Christoph Varga und »Presse«-Kolumnist Josef Urschitz diskutierten.

Wozu braucht man überhaupt Wirtschaftsjournalismus? Für wen senden bzw. schreiben Sie?

Josef Urschitz: Nachdem jedes Handeln in der Wirtschaft oder in der Wirtschaftspolitik Auswirkungen auf den Staatsbürger hat – siehe Hypo Alpe Adria –, sollte Wirtschaft jeden interessieren. Ich habe in meiner doch relativ langen Zeit als Wirtschaftsjournalist bemerkt, dass sich das Interesse sehr stark erhöht hat. In meinen Kommentaren versuche ich, die Welt für wirtschaftlich interessierte Leser darzustellen. Den vielen Rückmeldungen zufolge dürfte das gelingen.

Christoph Varga: Wirtschaftsjournalismus heißt erklären, erklären, erklären. Die Leute interessieren sich nicht von vornherein für wirtschaftliche Themen, aber ich stimme zu: Das hat sich stark geändert. Der Taxler redet mich an, die Sprechstundenhilfe redet mich an und will wissen, warum die Wirtschaftskrise ausgebrochen ist. Es überrascht mich aber, dass Herr Urschitz von so vielen Leserreaktionen berichtet. Wir berichten in der „ZiB“, haben in guten Zeiten 1,2 Millionen Zuschauer, kriegen maximal zwei, drei Mails.

Der interne Kampf um Europas Bankenrettung

29.03.2014 | 18:13 | von RAIMUND LÖW – ORF (Die Presse)

EZB-Chef Mario Draghi ist in der Bankenwelt beheimatet. Protokolle der EU-Gipfeltreffen belegen, wie er bei der Kontrolle der europäischen Finanzinstitute einen Konflikt mit der mächtigsten Regierungschefin der EU, Angela Merkel, austrug und verlor.

Das Wahrzeichen des Finanzplatzes London ist die Gurke, der Gherkin. Der ungewöhnlich geformte Wolkenkratzer des Versicherungskonzerns Swiss Re ist ein paar Kilometer Luftlinie von der US-Bank Morgan Stanley entfernt, wo über Bildschirme, Kopfhörer, Computer und den Finanz-Onlinedienst Bloomberg News hunderte Händler mit Finanzzentren weltweit verbunden sind. Die Trader blicken auf das alte Hafenviertel Canary Wharf und über die Themse. Doch hier geht es um das Geschäft.

In Handelsräumen wie diesem werden per Mausklick Millionen Euro oder Dollar hin und her geschoben. Praktisch 24 Stunden täglich. Wenn es hoch hergeht, riecht es schon morgens nach Schweiß. Dicht an dicht sitzen allein bei Morgan Stanley an die 800 Händler nebeneinander. Es ist eine verschworene Gemeinschaft des Geldes. Junge Leute um die 30 Jahre aus allen Ländern der Welt, ein Drittel davon Frauen.

Einige der jungen Händler sind schon in zweiter oder dritter Generation im Geldgeschäft. Wie Giacomo Draghi. Der Sohn des Präsidenten der Europäischen Zentralbank, Mario Draghi, ist bei Morgan Stanley in London Swap Trader. Giacomo verdient sein Geld, indem er mit Wetten handelt, die darauf abgeschlossen werden, wie sich Zinsen entwickeln könnten. Ein paar Reihen von Giacomo entfernt sitzt Carlo Draghi. Er ist bei Morgan Stanley Abteilungsleiter für strukturierte Finanzprodukte. Carlo ist der Neffe von Notenbank-Chef Mario Draghi.

Euro Zone Edges Closer to Deflation

Date: 28-03-2014
Source: The Wall Street Journal

German, Spanish Data Put Pressure on ECB to Consider Fresh Stimulus

FRANKFURT—Spanish consumer prices unexpectedly fell from a year ago and German inflation edged below 1%, suggesting the euro zone is edging closer to a paralyzing bout of extremely low inflation, or even broad-based price declines known as deflation.

The inflation figures from two of the bloc’s four-largest economies put further pressure on European Central Bank officials to consider fresh stimulus measures when they meet Thursday, including negative rates on bank deposits. Annual inflation in the euro zone was 0.7% in February, and the reports from Germany and Spain suggest it could weaken to as low as 0.5% when data for the entire bloc are released Monday. The ECB targets inflation of just below 2%.

Spanish consumer prices in March were 0.2% below levels seen a year ago, as prices for food and nonalcoholic beverages declined. This followed a 0.1% increase in prices in the previous month.

Annual inflation in Germany was 0.9%, while consumer prices were up 0.3% on the month.

„The net effect has been to boost expectations for ECB action next week,“ said Marc Chandler, currency strategist at Brown Brothers Harriman, in a research note. The euro fell against the U.S. dollar as hopes for ECB interest-rate cuts rose.

Swiss banks: Swissness is not enough

Date: 27-03-2014
Source: The Economist

Big and small must adapt to survive

LIKE their country’s watchmakers, Swiss banks have enjoyed a reputation for quality, reliability and watertight discretion. But since 2008, spectacular coups by neighbouring countries’ tax authorities and investigations by America’s Department of Justice have torn at their reputation. Now they are trying to rebuild one as squeaky-clean money managers.

The deceptive calm of shoppers on the Bahnhofstrasse in Zurich belies the turmoil behind the doors of nearby financial institutions. Foreign banks are selling out. The biggest Swiss names are dogged by litigation and calls for more capital just as costs are rising and margins falling. On March 13th they lost a prominent client: Uli Hoeness, president of Bayern Munich football club, was jailed for three-and-a-half years by a Munich court for avoiding tax on money in a Swiss bank account.

It is now clear to even the most obstinate Swiss banker that he must change his game or face ruin. Four of the classic Swiss private banks, Pictet, Lombard Odier, Mirabaud and La Roche, have opted for limited liability, ending the owners’ total responsibility for the core bank—mainly because of the risk these days of picking the wrong clients. That leaves a shrinking number of private banks in Geneva, of the sort whose offerings go beyond providing financial advice into something more akin to a lifestyle concierge service. Some are surely too small to survive.

Swiss bank secrecy is no longer a protection. Between them the OECD, a rich-country club, and the EU are insisting on a voluntary exchange of information that makes banks declare each account automatically to the relevant tax authority. America has dished out hefty fines, too, and forced lenders to hand over names, a once-unthinkable breach of client trust.

Inflation and interest rates: Up, up and away

Date: 29-03-2014
Source: The Economist

Higher inflation may be needed to leave extra-low interest rates behind

AT FIRST glance, rich-world central banks are going their separate ways. Cheered by sturdy growth figures, the Bank of England and the Federal Reserve are shuffling toward an exit from easy monetary policy; markets found Janet Yellen’s first Fed statement unexpectedly hawkish. The European Central Bank, in contrast, is tacking looser. On March 25th Jens Weidmann, president of the Bundesbank, suggested that the ECB might need to be more forceful in order to keep the euro-area economy out of the grips of deflation.

Look again, however, and the path forward appears similar across the rich world: low interest rates stretch off into the visible distance. The outlook is clearest in Europe, where the ECB may toy with negative rates as a means to fend off deflation. But even in America and Britain “normal” rates are a distant prospect. In February Mark Carney, the Bank of England’s governor, promised that eventual rate rises would happen gradually, and would level off below the pre-crisis norm. On March 19th Ms Yellen offered similar guidance. Markets project that short-term rates in both economies will still be just 2% in early 2017 (see chart 1), a level the euro zone will not hit until 2020.

As normalisation recedes toward the horizon, central bankers moan publicly about the costs of low rates. In February Daniel Tarullo, a Fed governor, said that they might encourage investors to take dangerous risks as they “reach for yield”. Even more worrying, low rates leave little cushion against future shocks. The Fed’s main policy rate was just 2% when Lehman Brothers failed in 2008, compared with 5% at the start of the 2001 recession and 8% when the downturn of 1990 began.

Yet rates are low for good reason: economies cannot withstand dearer credit. Central banks are battling against two sources of downward pressure on their main policy rates. One is the rock-bottom level of the real (ie, inflation-adjusted) interest rate needed to keep economies running at full tilt. This “natural” rate has been dragged down by long-term structural trends. A global savings glut is partly to blame: export powerhouses like the OPEC countries and China buy vast quantities of rich-world debt, depressing borrowing costs in the process. Rising inequality also adds to the pool of underused savings, since the rich save more of their income. Leaden real rates were reinforced by the financial crisis. Tumbling asset prices forced households to repay debts rapidly. As they struggled to deleverage, their interest in new borrowing and spending evaporated.

Günther Robol analysiert, warum die Kärntner Haftungen bei der Hypo Alpe Adria wohl nie schlagend geworden wären

Video einer Veranstaltung des Wiener Akademikerbundes zur Hypo. Video von Reinhard Bimashofer. Vom 25/3

Wirtschaftstreuhänder und Bilanz-Experte Dkfm. Günter Robol zur Hypo-Alpe-Adria. In 14 Minuten macht Günter Robol bei seinem Einleitungsreferat im Wiener Akademikerbund am 25.3.2014 klar, wieso die politisch Verantwortlichen bei diesem Hypo-Skandal die für den Steuerzahler schlechteste und teuerste Lösung gewählt haben.

Wohlmeyer Video https://www.youtube.com/watch?v=K0xaCALSmJw&list=UU8FEIbTQKQZXxS3mWpYRWmw

Date: 27-03-2014
Source: The Economist
Subject: Labour markets: A mighty contest

Job destruction by robots could outweigh creation

“OUR ROBOTS PUT people to work,” says the rejected slogan still on the whiteboard in Rodney Brooks’s office. It was meant to convey the belief that led Mr Brooks to start Rethink Robotics: that robots in small manufacturing businesses can create new jobs, or at least bring old ones back from China, thus helping to launch an American manufacturing renaissance. But the message could also be read another way: robot overlords forcing human helots into back-breaking labour. Better left unsaid.

Small and medium-sized companies are between 20 and 200 times less likely to use robots than large ones in similar sectors, according to a study carried out by Metra Martech, a consultancy, for the IFR. They could thus become an important market if someone were to offer them the right robots, which would open up new sectors of the economy to the productivity gains that can come with automation. Such robots would still do routine tasks but would be able to switch from one set of tasks to another as required, perhaps every few weeks, perhaps a couple of times a day. They would therefore be heavily dependent on their human fellow workers to set them up and get them going.