World Economics 101

**warning, if economics bore you, please skip this post.

On ocassion I switch from my standard programming- CNN International - to watch the local news. I think it counts as studying Spanish and is much more interesting than my verb workbook that I haven't even picked up in probably a year.

Plus, although it seems like a crazy foreign show, sometimes they talk about stuff that is actually impacting my life. For example, the other morning I was watching a morning news/talk show as they talked about inflation. In January of this year this program went to the grocery store and bought a variety of items like bread, bananas, canned peas, tomato sauce, milk, etc. Their total cost was 10 pesos. The returned to the same store in November and bought exactly the same products, and this time their total cost was 17 pesos!!

I already thought Argentina is outrageously expensive for Argentine's, and knew the prices were rising, but didn't keep close enough track of the nubers to realize how much. It's TERRIBLE! I've started asking everyone I know here for their opinion on what's happening with the economy so that I can repeat what they tell me and sound informed, but basically all anyone says is "oh, it's cyclical, we'll be in a depression again soon and then climb out of it again."

But the other night one of Mario's friends came to dinner and I got a little more informed opinion, which I have regurgitated witha few other more informed friends. This is my summary on where the economy is currently:

1. The dollar is falling all over the world (as we know) but has remained strong in Argentina with the exchange rate around us$1 = 3.17$arg at last check. This is because the government wants to support the exports. Soy in particular is a huge export for the country, and their largest sourse of foreign reserves, so the government maintains the exchange rate to keep exports competitive.

2. The government maintains a strong dollar exchange rate by buying up the extra dollars on the market. However, there are so many extra dollars on the market that in order to do that they've had to print more money. This newly printed money is not backed by anything, it's just printed up and then put into circulation. The currency used to have a sentence on it saying it was backed by US dollars and fully convertible. The new money does not have this sentence.

(common opinion is that most countries in the world right now, including the US, are freely printing money not backed by anything)

3. Let's face it - whether you like it or not the economy is global. And the US being a huge consumer, they pretty much set prices for most of Latin America. So for most goods we pay dollar prices even though we earn pesos.

4. Prices are rising, but demand is still growing. It's crazy. I feel like such a small sector of the population can afford current prices that certainly they must go down, right? We earn a decent income and we certainly can't afford these outrageous prices. But two things are keeping the prices high. A) there is lots of money circulating around due to the increased printing of bills (side note, apparently they are not printing coins because NO ONE EVER has change, not stores, not taxis, and they're all really annoyed if you don't pay in exact change and always just round in their favor) 2. Due to the crisis of 2001-2002 when the banks automaticaly changed all savings to pesos and froze the amount people could withdraw, no one has any confidence in the banks. In addition, it's very hard to get credit to buy anything substantial, like a house. So you combine: lots of currency floating around + no ability to save money + no big payments like mortgages = people just spending their money on shoes that cost 400$pesos and cell phones that cost 750$ pesos. Seriously. A good friend of ours makes about 1500$pesos a month. He is single and lives with his parents, graduated from college, no car, and just got a new cell phone worth $650 pesos. His cell phone is half of his monthly salary!!!

Everywhere around us we see signs of a supposedly good economy - construction is happening on every block in this city, you go to the malls or shopping centers and they are packed, with everyone carrying bags, new restaurants are opening up right and left, and seem to be fairly full, unemployment has dropped significantly. But prices have whizzed past anything that would be affordable for us.

This is the new Argentine President, Cristina Kirchner. She is an attractive woman but has serious problems with mascara clumps. Since everyone is complaining about government curruption and rising inflation, I can't figure out why they voted for the wife of the current president who has plans to follow in his steps.

Some here have voiced the opinion that the global economy cannot last, that the world must return to more regional economies with imports/exports being a much smaller percentage of goods. I don't really think it's possible to regress, and being the good capitalist I am, I don't necessarily think it's a good answer. But I am shocked to be living in a world with such high inflation, and anxious, in a not good way, to see what's going to come of it.

Have you noticed inflation in the US lately? Do you think a global economy is to blame for the woes of the 3rd World?