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Home Publications Blogs Beat the Press Argentina's Problem Was an Over-Valued Dollar, Not Inflation

Argentina's Problem Was an Over-Valued Dollar, Not Inflation

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Thursday, 06 October 2011 19:59

In an otherwise thoughtful column comparing the current situation with Greece and its options for leaving the euro with the situation of Argentina in its 1998-2002 crisis, Floyd Norris gets a fundamental fact wrong. Norris told readers:

"In 2002, Argentina’s currency, the peso, was officially tied to the dollar at a one-to-one parity. There was a “currency board” that was supposed to assure the tie could never be broken, and it had worked for a decade. But Argentine inflation had outpaced that of the United States, and the peso was seriously overvalued."

Actually, Argentina had no inflation at all in the years from 1997 to 2001. The reason that its economy became less competitive was that the dollar had soared in value against other currencies. When the dollar rose, the Argentine peso rose with it. This made Argentina's economy uncompetitive.

The problem was not excessive domestic inflation, but simply that its currency was linked to the dollar at a time when its value was rising. While the United States could support the large trade deficit that resulted from an over-valued currency, Argentina could not.

Comments (2)Add Comment
Exactly: Texas and USA Will Not Repeat the Mistake of Argentina
written by izzatzo, October 07, 2011 8:37
The reason that its economy [Argentina] became less competitive was that the dollar had soared in value against other currencies.


Rick Perry here. I knew that. Any economist knows the difference between domestic inflation and the value of the dollar compared to other currencies.

This is why Texas survived the onslaught of Obama socialist spending so well to remain competitive and escape inflation at the same time. I plan to apply this strategy to the entire nation.

When elected president the currency of the USA dollar will no longer be pegged to the sovereign currency of Texas and be allowed to float instead, forcing the USA to compete once again and no longer rely on subsidies from Texas.

Keep the dollar strong by avoiding inflation and subsidies at the same time. Compete for a living like we do here in Texas.

Stupid liberals.
Perry, eh?
written by david, October 07, 2011 2:01
Nothing like that fresh water thinking. Thanks for the laugh, izzatzo!

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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