Why You Should Care That Argentina More And More Looks Like Argentina

Why don’t you fight the Fed? Sure, central banks and governments give off the impression that they are in control. The idea is repeated as if a fact. We are led to believe they let markets play around in their contained spheres but should anyone get out of hand authorities are there like referees to make sure everything remains inbounds. Whenever a price or an asset class approaches the boundary, woe be it to whoever might challenge the almighty holder of the printing press.

Yet, we see all the time how there’s so little underneath. Central bankers talk a good game, but that’s all they do is talk. Over the last twelve years in particular, whenever they have been less than politely invited to put up or shut up they’ve essentially put up more talk – yes, QE was all talk – and simply expected no one would notice.

Take the world of global exchange and currencies, for example. Even today we are expected to believe that powerful central bankers set the limits for how these things go and oversee everything in between. Should anything start to look different, even then we are told to believe that it can only be different by decree of that same central bank. Behind everything is this official purpose we aren’t privy to.

If China’s yuan has gone under 7.0, then by god that’s because the PBOC wants it that way! How else can we interpret the behavior?

That’s what motivated my last discussion with Erik Townsend on the MacroVoices channel. We are taught from the very beginning that central banks are central and in the case of China its central bank is doubly so. Not only does it have a printing press it also stands on top of the largest stockpile of foreign reserves ever conceived.

Therefore, at least outwardly, it seems clear cut that if CNY drops there must be some official reason for it.

Except, no, that’s not how it goes – as you can plainly see by nothing more than economic trends. Currency devaluation, if that’s what this is, just hasn’t worked. Rather than see exports or manufacturing pick up whenever the PBOC allegedly presses the deval button, we find the opposite. It’s a remarkable outcome, and a remarkably consistent outcome, that flies directly in the face of convention.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Moon Kil Woong 1 week ago Contributor's comment

Argentina is one of those countries that signal a global downturn because they are very sensitive to tight money.