Note that Argentina did not raise their rates by 97% but rather to 97% ! The Central Bank of Argentina raised its key interest rate Monday by six percentage points to 97% in an effort to tackle soaring inflation that has reached 30-year highs. May 15, 2023 https://english.news.cn/20230516/0d69c0d2fd5a43c1a0a20d27d98930be/c.html https://www.cnn.com/2023/05/15/busi...l Bank of Argentina,has reached 30-year highs Honestly, not that surprising this is happening in Argentina. They're had rampant inflation problems in their country's past history. Argentina is one of the more prosperous nations in Latin America, much more like a "Second World" country than a "Third World". When the level of inflation is so high, you have to let the interest rates match the inflation rate. It's too expensive for the government's Central Bank to try to artificially suppress interest rates at that point. It would just contribute to more inflation. So Argentina's Central Bank has pretty much given up, thrown in the towel, and is letting the country's interest rates fall where they may, dictated by the free market, which is going to be high in the presence of massive inflation. The interest rates are naturally going to follow the high inflation rates. If you have a very high inflation rate, the interest rates are going to need to be at least as high to keep up. Argentina's inflation rate was 94.8% for the year of 2022. I think the problem ultimately stemmed from Argentina getting into too much debt in the first place. Then the country "needed" help from the IMF. Argentina was printing money to pay off its debt obligations, and that ended up triggering a spiral of hyperinflation. This problem always seems to repeat over and over again in different parts of the world. A government run by the Left borrows too much money, they get into a problem with debt, and then need assistance from the IMF to bail them out, but all the Leftists in the streets riot and complain about the conditions imposed on their country by the IMF. The IMF imposes these conditions in an attempt to try to help make sure they will be repaid when they make the emergency loan. Economist Warren Mossler says that he warned that this would happen, but now Argentina is trapped by conditions imposed by the IMF. Mosler explained how raising the interest rate from 30% slowly to 100% kept pushing the inflation rate up, because the income going to the rich was being used to buy dollars and this drove down the value of Argentina's currency.
All fiat currencies eventually become defunct. This includes our Federal Reserve Notes. The US dollar has lost about 90% of it's value since '64 when we abandoned the silver standard. What this means is that a product or commodity that was worth a buck in 1964 now cost $10.
And right now, at his point in history, the US dollar is beginning to lose its role as the world reserve currency. The thing is, for many decades the US has been able to print large amounts of money without it causing too much inflation, because the rest of the world is using those dollars too. But if the rest of the world stops using those dollars, the US is not going to be able to get away with that. Printing more money is going to end up causing inflating at a faster rate. And the thing is, the more inflation there is of the US dollar, the more the rest of the world is going to start dumping it. So there is some amplifying effect. Right now it's estimated that around 75% of US dollars are used overseas. What that means, theoretically, is that if the rest of the world were to dump the US dollar as the world reserve currency, when the US prints more dollars it would end up creating FOUR times more inflation than it does currently. So if the US continued printing money at the rate it has, we would see 12% inflation rather than 3%, as an example. (That would actually be a huge thing, because higher percentage rates compound much higher over time than lower interest rates. 3% compounded over 6 years is 19.4%, whereas 12% compounded over 6 years is 97.4%, which is FIVE times more, not four. What I'm saying is that if annual inflation were four times higher, it would be MORE than four times worse. The dollar would very quickly start losing its value over time. 97.4% means the dollar would lose about half of its value over 6 years time) The only reason the US dollar isn't ending up in a hyperinflation crisis like Argentina is because currently it has the unique status as the world's reserve currency. In Argentina, no one wants to lend them money in Argentine pesos because they think how much will that money actually be worth when it comes time for them to be paid back? Lenders are scared of inflation. If Argentina promises to pay a 10% interest rate back, for example, the lender will have lost money. I think Americans need to look at what is happening in Argentina because there is a danger the same sort of problems could happen in the US in the future.
Rising poverty grips Argentina as runaway inflation takes its toll, Debora Rey, AP News, September 27, 2023 "The portion of Argentines living in poverty reached 40.1% in the first six months of the year, according to figures released Wednesday by the government’s INDEC statistics agency. That is up from 39.2% in the second half of 2022." "For much of the 20th century, Argentina showed a social mobility dynamic that gave rise to a large middle class and made the country stand out in the region. But the good times derailed, and poverty has remained firmly above 25% the last two decades"
Some on the Left might try to argue that allowing interest rates to rise would be "giving money to the rich" in other countries, since they hold the debt. But could these people on the Left explain how the opposite of that, trying to keep interest rates down, would be different from "giving money to the rich" in other countries? You do realise that to be able to lower interest rates, Argentina's Central Bank would have to buy that debt outright? That IS how a Central Bank lowers interest rates, the main thing that would be going on with that policy. So the two options (if we're comparing them) come down to either printing money to buy all of the debt, or printing money to pay the interest payments on the debt.
Argentina was forced to borrow in other currency because its currency was not strong enough to borrow in Argentine pesos. Just to let you know, a country doesn't necessarily have to have an (or the) international reserve currency to be able to borrow money in its own currency. And probably the whole main reason it had to borrow in alternate currency rather than its own was because the rest of the outside world had limited trust in Argentine currency due to a troubled history of high inflation. (Argentina had a devastating period of hyperinflation from 1975 to 1991) Even in 2003 their inflation was quite high at 13.44 % and stayed around 8 to 9% between 2005 to 2013. At those continued rates, and with their history, it would have been very difficult and impractical to borrow on the international market in their own currency.
