Topic: For Americans Shocked by Inflation, Argentines Have Some Advice (Read 164 times)

Jokes apart, the average Argentinian has learnt more about economy, inflation, the banking system, the credit system, what money really is and what an irresponsible politician can do to their lives. Hyperinflation, "corralitos", debt beyond measure and governments that last months.

Just for the record, I'm Argentinian, currently living in Buenos Aires. We've had 260% weekly inflation, not counting hyperinflation that, as far as I know, nobody even cared to measure.

So a few things we do know about it. The "burn your paycheck quickly" is true, but also stems from having a miserable life and seldom (if ever) having enough to cover life's most basic needs.
The "real estate-cars" thing is BS. Most people simply don't even have the money to RENT a home, let alone owning one. Same with  cars: a car that'd cost USD 20000 in the US is about USD 100000 in Argentina. An average salary is about USD 400 a month. Buying a car as an investment is completely unrealistic here.

"Borrow lots of money"... yeah, in your dreams. First, you need to jump through an ungodly number of hoops to have a chance of borrowing a coin, and then, the normal interest rate is about 100+% a year, and that for the first year. It grows exponentially afterwards.

Same with "negotiating a pay raise". The typical answer would be "NO", period. An employer puts an ad asking for a new employee and taking interviews starting at 9 A.M., and at 5 A.M. there are already 600 people forming a line at their door. There's no negotiating here. You take what you get, or feel free to leave.  
And finally, the "inflation linked bonds". Argentinians barely have enough money to eat and feed their families. They DEFINITELY don't have any to buy bonds. I have personally seen guys scamming people, offering them Bitcoin, with promises of THOUSANDS % IN DAYS, and that's as far as the average Argentinian's investment capacity goes. Maybe, with luck, 10, 20 USD.

Wow. That sucks. 260% weekly inflation?? Who would believe that the country that gave Maradona and Messi has seen such a tumultuous history.

I was just reading up on the economic history of Argentina and it is bewildering that it used to be a developed country as early as 1930. The spectacular decline due to bad politics and military interventions may seem extraordinary. Yet, while reading abut it, I couldn't help but compare it with the USA. Same political divisions of Left-Right, Lots of educated people who have a voice, threatened constitutional integrity.

Maybe the USA could take a lesson or two from what happened in Argentina.

What would you say about the political stability in Argentina? Is it even possible that the political class can come to an agreement and save their country or they'll only be playing tug of war for the seat of power with military or amongst themselves at the expense of millions of citizens?

Just for the record, I'm Argentinian, currently living in Buenos Aires. We've had 260% weekly inflation, not counting hyperinflation that, as far as I know, nobody even cared to measure.

So a few things we do know about it. The "burn your paycheck quickly" is true, but also stems from having a miserable life and seldom (if ever) having enough to cover life's most basic needs.
The "real estate-cars" thing is BS. Most people simply don't even have the money to RENT a home, let alone owning one. Same with  cars: a car that'd cost USD 20000 in the US is about USD 100000 in Argentina. An average salary is about USD 400 a month. Buying a car as an investment is completely unrealistic here.

"Borrow lots of money"... yeah, in your dreams. First, you need to jump through an ungodly number of hoops to have a chance of borrowing a coin, and then, the normal interest rate is about 100+% a year, and that for the first year. It grows exponentially afterwards.

Same with "negotiating a pay raise". The typical answer would be "NO", period. An employer puts an ad asking for a new employee and taking interviews starting at 9 A.M., and at 5 A.M. there are already 600 people forming a line at their door. There's no negotiating here. You take what you get, or feel free to leave.  
And finally, the "inflation linked bonds". Argentinians barely have enough money to eat and feed their families. They DEFINITELY don't have any to buy bonds. I have personally seen guys scamming people, offering them Bitcoin, with promises of THOUSANDS % IN DAYS, and that's as far as the average Argentinian's investment capacity goes. Maybe, with luck, 10, 20 USD.

What problem exactly are we trying to address by increasing wages or pegging wages to inflation? Why do we need to cure the symptoms of inflation instead of the disease itself? To alleviate a Cantillon effect? To make workers a bit happier? Who gets to pay these increased wages? In order to fulfill their obligations to pay employees higher wages, employers need to raise prices for the products they sell. The cost of higher wages is now simply passed on to someone else, that is, the consumers of a product. The employees, who have their income increased, are also consumers meaning that they are not going to enjoy the benefits of higher wages for long. Higher wages, despite all peggings, adjustments, and corrections, will only lead to higher inflation. Moreover, people witnessing ever-growing prices and never-ending printing will have inflationary expectations that, in turn, usually cause increased spending and, therefore, even much higher prices.

The european union tries to paint a pretty picture of its economy by pegging wage growth to inflation. When inflation rises, workers can expect their wages to rise as well.

A crypto token pegged to an inflation rate could have an adjustable rate of exchange in an effort to protect the wealth and purchasing power of HODLers. I'm not entirely 100% certain how this might work (or not work) in practice. An adjustable rate of exchange could theoretically be achieved through supply. The total supply of tokens might be inflated or destroyed in an effort to match inflation rates. This could be done algorithmically as an alternative format to bitcoin's deflationary reward halving.

Inflation itself is a controversial topic. There are some who claim inflation was a mere 3% post 2020. Inflation is similar to unemployment, in that its official definition and statistic has been adjusted, shifted and changed over time. The rise of prices, certainly does sometimes appear more than the paltry 3% or 8% which official statistics claim. Some might agree with that, others would not, I'm guessing.

The european union tries to paint a pretty picture of its economy by pegging wage growth to inflation. When inflation rises, workers can expect their wages to rise as well.

A crypto token pegged to an inflation rate could have an adjustable rate of exchange in an effort to protect the wealth and purchasing power of HODLers. I'm not entirely 100% certain how this might work (or not work) in practice. An adjustable rate of exchange could theoretically be achieved through supply. The total supply of tokens might be inflated or destroyed in an effort to match inflation rates. This could be done algorithmically as an alternative format to bitcoin's deflationary reward halving.

Inflation itself is a controversial topic. There are some who claim inflation was a mere 3% post 2020. Inflation is similar to unemployment, in that its official definition and statistic has been adjusted, shifted and changed over time. The rise of prices, certainly does sometimes appear more than the paltry 3% or 8% which official statistics claim. Some might agree with that, others would not, I'm guessing.

And for those Americans really frustrated by surging prices, Lalanne offers one more piece of advice: “Come to Argentina to spend your dollars. Here you are very rich.”

Not exactly for inflation but this has been tried with algorithmic stablecoins. They call them rebase coins. They suck most of the time. They try to keep the peg maintained by burning the supply or increasing it whenever there is a change in price. None have really worked the way they should.

Regarding that advice, I don't think that "Spend your paycheck right away" is good advice. Rather than that, save money for a down-payment, take a loan, buy a house, put it up for rent and let the rent pay for your mortgage. That is the classic cycle to beat inflation. Spending money on things you don't really need, like a sofa, is a sure shot way to penury in a high inflation environment.

The european union tries to paint a pretty picture of its economy by pegging wage growth to inflation. When inflation rises, workers can expect their wages to rise as well.

A crypto token pegged to an inflation rate could have an adjustable rate of exchange in an effort to protect the wealth and purchasing power of HODLers. I'm not entirely 100% certain how this might work (or not work) in practice. An adjustable rate of exchange could theoretically be achieved through supply. The total supply of tokens might be inflated or destroyed in an effort to match inflation rates. This could be done algorithmically as an alternative format to bitcoin's deflationary reward halving.

The stablecoins we have today are already pegged to inflation rates because they lose their value at the same rate as other inflationary currencies. In order to be a hedge against inflation, they should not be stable in any sense. What characteristics they have to have to provide reliable protection against inflation is a solid decentralized monetary policy with a fixed supply that no single individual or government could change.

Does anyone have good inflation survival tips they would like to share?

In the future, a crypto token or coin could be pegged to inflation rates, as another type of stablecoin. That could be one area cryptocurrencies might expand into, where they may not have yet given much attention.

For many Americans, the sudden burst of inflation that has rocked the economy has been disorienting.

Consumer prices had been so stable for so long in the U.S. that the population finds itself a little rusty on basic inflationary-era tactics.

So for some advice, we turned to people who have become experts in the art of surviving runaway inflation: Argentines. Walk around Buenos Aires and you’ll hear conversations -- between 18-year-old college students, 90-year-old retirees and everyone in between -- about currency exchange rates, soaring prices and strategies for coping.

Of course, the 50% inflation they deal with in a typical year in Argentina -- the product of decades of policy missteps that have destroyed confidence in the central bank -- is far higher than the 6.8% rate that Americans are enduring. But many of the principles that shape the day-to-day habits of Argentine workers, consumers and savers are still broadly applicable in the U.S. today.

Here are the Do’s and Don’ts they offered up, for however long the inflation fever lasts.

Spend Your Paycheck Right Away

In a high-inflation economy, money that sits in the bank is losing value. Each day, those $100 on deposit buy a little bit less. As a result, many Argentines spend their paychecks as soon as they receive them, carting away weeks worth of groceries in a single shopping trip, even if some of it -- excess meat, chicken, fish -- will sit in the freezer for months.

The practical application of this technique in the U.S., where inflation isn’t quite high enough to warrant such a mad pay-day dash, is to expedite plans to buy big-ticket items -- appliances, bicycles, furniture. If you have the money to pay for that sofa now, do it.

“Don’t leave your money resting under the couch,” says Federico Pieri, 30, who works in sales in Buenos Aires. “That’s the worst thing you can do.”

Borrow Lots of Money

And don’t hesitate to borrow money to finance some of those big purchases. If you can get a loan at a rate below inflation -- something that’s possible for many Americans today -- go for it. Inflation will make it easier to repay the loan in coming months and years.

It’s just like they teach in economic textbooks, says Fernando Iglesias Molli, a coffee shop owner: “Take out money at very low rates. I put myself in debt to buy the best equipment and create business opportunities.”

Negotiate a Pay Raise -- or Two

It’s important to remember, Argentines say, that those old 2% wage increases you were getting each year no longer suffice. Any increase in your paycheck that’s less than the 6.8% inflation rate is effectively a pay cut. Your real wage, as economists call it, is declining.

Argentina’s labor unions and companies negotiate annual pay raises for workers that factor in expected inflation. When prices rise more than anticipated, those agreements often get ripped up, and the two sides go back to the negotiating table to iron out new terms. It’s a powerful tool that American workers can take inspiration from, albeit one that would create angst for policy makers trying to prevent a wage-price spiral.

Buy Inflation-Linked Bonds

There are few good options for savers in a high-inflation economy. One of Argentines’ favorite saving tricks -- converting peso savings into dollars -- doesn’t work in the U.S., of course. Cryptocurrencies are another favorite, but many Americans already discovered those long ago, too.

Then there’s inflation-linked debt. Argentine bond investors are so scarred by years of surging consumer prices that they insist the government sell it securities whose value rises in lockstep with the consumer price index. Those bonds make up almost 50% of the local debt market.

In the U.S., they account for less than 10% of the overall market. Demand for them is picking up, though, including among mom-and-pop investors, who have begun to pile into the retail version of the securities.

“Try to invest in something that can at least correlate with inflation,” Pieri says.

Buy Homes and Cars

Another age-old hedge against inflation is real-estate, which tends to increase in value over time. Cars are also a popular savings investment among some Argentines. That option may seem a bit odd in a country like the U.S. where cars tend to depreciate in value rapidly, but the short supply of automobiles around the world has recently changed that dynamic.

And for those Americans really frustrated by surging prices, Lalanne offers one more piece of advice: “Come to Argentina to spend your dollars. Here you are very rich.”

https://www.bloomberg.com/news/articles/2021-12-11/the-inflation-pros-from-argentina-offer-tips-for-rattled-americans