Is the U.S. headed for a period of Argentine-like stagflation?
Yesterday's WSJ contained an interesting Op-Ed piece on Argentina. The bulk of the article talks about how the country's government is cracking down on the press, reigning in their freedom in a weak attempt to keep the current regime’s popularity.
However, that's not what I found interesting about the piece. It actually got me thinking about the similarities between what is happening in that country and what is happening in the United States right now.
Argentina's leaders have boosted their poll numbers in a bad economy by "encouraging" the country's central bank to print lots of money (hmmmm that sounds awfully familiar). As the article goes on to say:
There's nothing like cheap financing to restore the market's enthusiasm for buying all sorts of stuff—from stocks to houses—already on sale at fire sale prices. The great reflation will make people feel rich again. A weak currency will also be a short-term boon to exporters, whose profits can then be taxed at ever higher rates.
All of this cheap money is working...for now. Argentina's stock market hit an all-time high yesterday (see article: Argentina stocks fall after touching all-time high).
This story made me chuckle to myself about all of the people on CAPS who are screaming to high heaven about how the U.S. dollar is doomed and yet have a huge portfolio filled to the gills with red thumbs on companies. If you think that the dollar will continue to fall, it makes absolutely no sense to be short the stock market right now. A falling dollar makes asset prices appear to rise.
Not surprisingly, the printing of money in Argentina has come at a cost. It didn't really fix any of the country's woes, it only temporarily masked them. Now once again its economy is stalling, but this time it is experiencing massive inflation at the same time...the dreaded stagflation.
I'm not saying that the United States is definitely headed for a prolonged period of stagflation, however I do strongly believe that our economy will grow at a much slower pace than we have become accustomed to over the next decade and that there is a very good chance that the value of the U.S. dollar will continue to fall in an orderly manner pushing the price of many assets, such as oil, higher. I suppose that one should call that stagflation, I just don't expect it to be as severe as some people do.
Argentina's Kirchner Targets the Press