6 ms·

Does this mean we're going to have to bail them out again?

biggestlou 1y ago
Did we bail them out before? From what I can tell, we opened up a currency swap using a Treasury fund (not funded by tax dollars) specifically devoted to currency stabilization.
- throwaway20222 1y ago
  If not us tax dollars, how are they funded? Are the backed with full faith of credit of the us government? It’s hard to search for answers on this one.
  - biggestlou 1y ago
    It's self financing: https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
- postflopclarity 1y ago
  A currency swap IS a bailout if the swap occurs at a price above what would otherwise be the market clearing price. "currency stabilization" is just a funny way to say "artificially propping up the peso" > using a Treasury fund (not funded by tax dollars) tell me, where do you think the Treasury gets its dollars...
  - AnthonyMouse 1y ago
    It would be kind of ironic if they were printing them.
    - biggestlou 1y ago
      Nope, it's self financing: https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
      - AnthonyMouse 1y ago
        > The fund began operations in April 1934, under director Archie Lochhead and financed by $2 billion of the $2.8 billion gold surplus the government had realized by devaluing the dollar. > The ESF can convert SDRs into dollars on its account by issuing certificates against them and selling the certificates to the Federal Reserve,[6] and later repurchase them when it has surplus cash. So they did actually fund it by printing money.
  - biggestlou 1y ago
    The ESF is self financing. And yeah, sure, it is artificially propping up the peso, the same way we propped up the Mexican peso, the Thai bhat, and others once upon a time.
bpodgursky 1y ago
No, it means the US just made a profit on the Argentine Pesos it bought to stabilize the currency.
- bix6 1y ago
  How did the US profit if the peso has continued to fall?
  - bpodgursky 1y ago
    It's strengthening tonight. It fell when markets thought he might lose. But then he won.
  - flave 1y ago
    Interestingly, the US made money on the Mexico bailout in the 80s and 90s. That’s only on the interest, not to mention the US economic activity. https://www.piie.com/publications/chapters_preview/43/6iie2717.pdf https://www.piie.com/publications/chapters_preview/43/6iie27... Under “disbursement and repayment”
sophrosyne42 1y ago
Actually, they were bailed out because the peso tanked after the peronist opposition won a political victory. The peso has strengthened because the libertarian party there won, so the stability of Argentina has increased. Peronism winning is directly correlated with argentine instability and bailouts
- kragen 1y ago
  The overvalued peso makes Argentine products economically uncompetitive abroad—and, now that we are allowed to import things freely, domestically as well. Keeping the peso overvalued is not an especially libertarian position, but rather one on which Milei seems to harmonize with the Kirchners' historical policies, and especially Menem's disastrous 1:1 policies that brought Kirchner to power in the first place. For Argentina to be stable, we would need a stable industrial base. That's very difficult to establish when the state is, in effect, taxing our exports and subsidizing our imports, even if it's less directly than during the Kirchner years. If Argentine output declines and unemployment soars, it will be very hard for Milei or his successor to avoid defaulting on the bailout loans, unless an even larger bailout follows, as it often has.
  - sophrosyne42 1y ago
    The peso is valued higher. It does not follow that it is overvalued. Most currencies will strengthen if central banks stop inflating their currency, and that is a libertarian position.
    - kragen 1y ago
      The peso is actually valued lower this month than ever before in history, but we can see that it is still overvalued because our domestic production still isn't competitive with imports. Not even in areas like cars and clothing where we have have a well-developed industry, if one that is shitty in quality. And this deplorable situation is not just a result of the central bank not printing money, which is indeed a perfectly libertarian position. Rather, it is a result of a massive outflow of foreign exchange reserves from the central bank in recent months, the explicit objective being to artificially raise the exchange value of the peso, worsening our uncompetitive situation.
a_c 1y ago
The had a currency swap. US earns interest from argentina by taking USD$20B worth of pesos. Argentina get USD$20B. By the end of the swap, Argentina "swap" the borrowed USD$20B with their pesos. Argentina has to pay interest (quick googling didn't reveal the exact terms). They both get their own currency in the end.
- xnx 1y ago
  > They both get their own currency in the end. Unless Argentina defaults, as they have many times before.

Did we bail them out before? From what I can tell, we opened up a currency swap using a Treasury fund (not funded by tax dollars) specifically devoted to currency stabilization.

throwaway20222 1y ago
If not us tax dollars, how are they funded? Are the backed with full faith of credit of the us government? It’s hard to search for answers on this one.
- biggestlou 1y ago
  It's self financing: https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
postflopclarity 1y ago
A currency swap IS a bailout if the swap occurs at a price above what would otherwise be the market clearing price. "currency stabilization" is just a funny way to say "artificially propping up the peso" > using a Treasury fund (not funded by tax dollars) tell me, where do you think the Treasury gets its dollars...
- AnthonyMouse 1y ago
  It would be kind of ironic if they were printing them.
  - biggestlou 1y ago
    Nope, it's self financing: https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
    - AnthonyMouse 1y ago
      > The fund began operations in April 1934, under director Archie Lochhead and financed by $2 billion of the $2.8 billion gold surplus the government had realized by devaluing the dollar. > The ESF can convert SDRs into dollars on its account by issuing certificates against them and selling the certificates to the Federal Reserve,[6] and later repurchase them when it has surplus cash. So they did actually fund it by printing money.
- biggestlou 1y ago
  The ESF is self financing. And yeah, sure, it is artificially propping up the peso, the same way we propped up the Mexican peso, the Thai bhat, and others once upon a time.

bpodgursky 1y ago

No, it means the US just made a profit on the Argentine Pesos it bought to stabilize the currency.

bix6 1y ago
How did the US profit if the peso has continued to fall?
- bpodgursky 1y ago
  It's strengthening tonight. It fell when markets thought he might lose. But then he won.
- flave 1y ago
  Interestingly, the US made money on the Mexico bailout in the 80s and 90s. That’s only on the interest, not to mention the US economic activity. https://www.piie.com/publications/chapters_preview/43/6iie2717.pdf https://www.piie.com/publications/chapters_preview/43/6iie27... Under “disbursement and repayment”

sophrosyne42 1y ago

Actually, they were bailed out because the peso tanked after the peronist opposition won a political victory. The peso has strengthened because the libertarian party there won, so the stability of Argentina has increased. Peronism winning is directly correlated with argentine instability and bailouts

kragen 1y ago
The overvalued peso makes Argentine products economically uncompetitive abroad—and, now that we are allowed to import things freely, domestically as well. Keeping the peso overvalued is not an especially libertarian position, but rather one on which Milei seems to harmonize with the Kirchners' historical policies, and especially Menem's disastrous 1:1 policies that brought Kirchner to power in the first place. For Argentina to be stable, we would need a stable industrial base. That's very difficult to establish when the state is, in effect, taxing our exports and subsidizing our imports, even if it's less directly than during the Kirchner years. If Argentine output declines and unemployment soars, it will be very hard for Milei or his successor to avoid defaulting on the bailout loans, unless an even larger bailout follows, as it often has.
- sophrosyne42 1y ago
  The peso is valued higher. It does not follow that it is overvalued. Most currencies will strengthen if central banks stop inflating their currency, and that is a libertarian position.
  - kragen 1y ago
    The peso is actually valued lower this month than ever before in history, but we can see that it is still overvalued because our domestic production still isn't competitive with imports. Not even in areas like cars and clothing where we have have a well-developed industry, if one that is shitty in quality. And this deplorable situation is not just a result of the central bank not printing money, which is indeed a perfectly libertarian position. Rather, it is a result of a massive outflow of foreign exchange reserves from the central bank in recent months, the explicit objective being to artificially raise the exchange value of the peso, worsening our uncompetitive situation.

a_c 1y ago

The had a currency swap. US earns interest from argentina by taking USD$20B worth of pesos. Argentina get USD$20B. By the end of the swap, Argentina "swap" the borrowed USD$20B with their pesos. Argentina has to pay interest (quick googling didn't reveal the exact terms). They both get their own currency in the end.

xnx 1y ago
> They both get their own currency in the end. Unless Argentina defaults, as they have many times before.