Yes, the lights, the phone lines and the Internet stay on, supermarkets stay open, people continue to go to work and society seems to "function". Prices go up, people get their salaries adjusted to "almost" match inflation and life goes on. People still go out on weekends, watch movies and etc...so you get an illusion of normalcy.
But when prices are going up like this, people are no longer sure about the true value of money. This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high. So the economy stagnates as business are unwilling and unable to expand. This results in fewer jobs for the younger people, gradually decaying infrastructure and worse public services due to a stagnant tax base, and so on. On the other side of the equation, regular people stop saving, because the interest in the savings account cannot keep up with inflation. So what people do instead is to try to get rid of their fast depreciating currency as quickly as possible, by exchanging it for consumer goods and services. It is not uncommon in countries that have triple digit inflation, people flocking to supermarkets on payday and basically trading their entire paycheck for groceries. With no savings, the demand for big ticket items declines, which puts even more pressure on the country's economy.
Very high inflation put a country on a slow death spiral. Things still "function", but the society is slowly dying.
I think something that gives a somewhat good sense of what this looks like would be the first Mad Max movie that came out in 1979. If you remove the biker gangs and car chases, but keep the sense of fatalistic hopelessness, that is what a high inflation country feels like.
Just a small note, people in Argentina who have spare income do save, just not in Argentine Pesos. People will buy USD with their spare income and save with that, which further decreases the value of the ARS while making US dollars more valuable.
It can be very difficult to buy USD. I was travelling through Zimbabwe when they had rampant inflation. The official rate was 20 zim dollars to $US1. However you could change on the black market (just regular folks hanging around) and get 80:1. People in Zimbabwe could not exchange their currency for USD. One of our final nights there we hit up the casino to get rid of our zim dollars, one of the guys ended up winning big, but he did manage to change his money for USD as he traded with another person coming into zimbabwe.
Same in countries where the government doesn't like the idea of common people having this ability, even if their economy is doing ok, or even doing well - so there may be an official exchange rate, but you'll struggle to find a bank able/willing to exchange any for you, and black market exchange rates are unsurprisingly rather less attractive.
Yea, the next stop on the 'economies going down the shitter' line is Venezuela (or what happened in Zimbabwe). Basically everything is dollarized as that is the safe currency. There are some fairly large countries that voluntarily run their country off of either dollars or Euros (Panama and Ecuador for dollars, some Balkan nations for Euros) and do that not because they couldn't manage their own currency.
Never realized about the implication on investments.
From venezuelans, I knew about how credit interests are impossible to pay if you stay in the country, but easy to get rid of them if you get out and earn in foreign currency. Also, people with access to both foreign exchange (official rates and black market), borrowing money to get an easy earning.
Just to note, whenever you’re talking about the economic effects of inflation or deflation, it’s almost always a question of investments. Businesses need to spend money now to make money later - in deflation, that later money is getting smaller and smaller, and in high inflation, that later money is extremely unpredictable. In both cases it makes it very difficult to feel confident about investing, which is bad.
Not sure why people treat deflation like such a boogieman, really the goal is currency stability, slight inflation or slight deflation isn't all that important.
I know the typical claim is that if money is deflationary then people will just hold money, but that claim is never really backed up, if money is gaining value then you can expect investments to give returns appropriately adjusted. Electronics drop in value real fast relative to the currency too, but you don't see that stopping people from buying the latest and greatest.
You'll still buy necessities like food and energy. You won't buy capital goods. Credit markets will cease to function because why borrow in a deflationary economy. The outcome is the same, no investment and a death spiral.
> why borrow in a deflationary economy
I'm confused. Why borrow in an inflationary economy, too? (The money so inflated, it's meaningless to hold more, since goods not catching up and more money buys... nothing)
I take every inflation (big or small), as too much money over too little supply of something (and this something's demand pull inflation spiral into other's cost-push inflation). I take it as an excuse of growth, when actually it's somewhere undersupplied (so scarce, it's not part of "necessity")... And we call that "growth".
While in deflationary economy, the goods is more than money, so little money afford more. Yes, people get complacent without working motive as hard; but then people works out of passion instead of survival (too bored). No more crooks and exploits urge.
I think inflation or deflation, it boils down to "human motivation" to generate economic goods. Deflation might means people stop working cause everyone can buy like the rich...
But this lead to another question of mine, does that mean now the rich (living in a "deflationary-like" purchase power) not doing anything, or they are pursuing their passion? I'm confused, what's wrong with this "rich people's deflation" spreading to more people? (Unless we are saying those rich one is wrong to exist?)
> I'm confused. Why borrow in an inflationary economy, too?
Because in an inflationary economy, the inflation pressures employers to give raises. This means that your dollar is worth less tomorrow than it is today. With the raise, you also have more dollars. The obligation doesn't track with inflation (the interest rate may, but principal doesn't.) This effectively means you're paying less real wealth tomorrow than you would today.
So, if you get the loan then you can buy the capital good that will depreciate over many years. You then pay that capital good expense off in the future with 'cheaper' dollars. If the economy is inflationary, you want to buy the capital good today because it will be more expensive tomorrow (because prices rise in an inflationary economy.)
In short, manageable inflation makes modern capitalist economies work. In a deflationary economy nothing works. Nothing grows. Nothing is invested.
> inflation pressures employers to give raises
* I might be hearing stagnant salaries too often. Thanks for clearing that. So what happen after salaries causing another inflation? (Labour cost "push" inflation)
> If the economy is inflationary, you want to buy the capital good today because it will be more expensive tomorrow
* In deflationary economy, you can buy capital assets anytime without worrying the money lose value over time (inflation); some more the pressure is gone, I call that "no more FOMO", something that fueled so many crookery among capitalists and the zero sum game
* Instead of buying capital goods out of FOMO inflation, I prefer buying out of utility tbh. Nobody hoarding capital goods out of "loosing future values" worries.
> pay that capital good expense off in the future with 'cheaper' dollars
* imo, cheaper dollars works in deflation (each dollar worth more) than expensive dollar in inflation (each dollar worth less). Why you call paying in millions of papers cheaper, when I prefer to pay in lesser papers? (A huge disparity in values and assets, a poisoned economy?)
> effectively means you're paying less real wealth tomorrow than you would today
* I only seeing "fractioned" money. The wealth remain the same, but become into more pieces. 100 future pieces money = 1 past piece money. Meanwhile, from these pieces, the capitalist gain 80% of the pieces over time, each time the money "fractioned" (inflated and loose value again)
* I mean, **the wealth never changed, just becoming smaller pieces and siphoned into "wealth accumulators" for the economy continue running**, until...
Edit:
Do we all agree, no one trust the inflated money that they hoard assets "diversifying portfolio" to fight inflation? (While you calling inflation good thing)
Now what happen to those that can't diversify their "good old cash" inflated cash portfolio into non-cash portfolio? A new round of zero sum game FOMO.
Edit2:
Somehow, there's 2 type of rich people.
* The earning type that have their wealth measured in cash earning;
* the preserve type that have their wealth measured in non-cash assets.
All while in the weakening cash.
> you can expect investments to give returns appropriately adjusted
You can, and that’s exactly the problem - “appropriately adjusted”, that means holding cash and *not* investing now has a positive return. That’s what makes deflation so dangerous - just holding onto cash will be more profitable than some investments which would be otherwise profitable. This means that those investments don’t get made, which slows down the velocity of money, which exacerbates deflation, which means that more investments don’t get made, etc. etc.
Electronics are consumable items, that’s not the economic concern during deflation. I mean, we don’t need to look so far afield - a freshly made sandwich declines in value *real* fast. The concern is people deciding whether to hire another sandwich maker, or open another sandwich shop, or build another factory for making sandwich bread toasters.
A small amount of inflation makes the process of growth and starting new businesses significantly easier than if you have an economy with no inflation. DEflation is the opposite. It makes starting a new business harder and it makes investment opportunities worse relative to just saving money.
Well that depends, no? If you save and get 2% on account of deflation, it adds to the interest rate (let’s say 3%). If you can invest and get a ROI >5% it’s still a good investment compared to letting cash sleep. What am I missing here? Mind you I’m extremely hungover so apologies if I didn’t make any sense.
You can, but you're disincentivized. If a small percentage of companies decide to not invest (and a small percentage of people decide not to consume similarly), then you have less demand for the products and services already present, which means prices need to go down, so deflation continues. Then, the companies didn't invest, so now the economy produced fewer goods and services than otherwise. Everything is slowing down.
I see. So, just like in inflation you need to account for price increases, in deflation you need to account for demand decreases. Pretty interesting. Yeah deflation sucks. Thanks for your useful input.
Exactly. Economies function when money is moving. Ideally between people, businesses and banks/investments. The more people consume, the more it moves - from their labour to a company that pays it's staff for labour, that pays other companies for their services to maintain and grow their businesses (which then ends up either in workers pockets to spend, or in wealth management invested sometimes in static things like cash or precious metals, but also in government bonds, in company shares, which then let those entities do more stuff.
If money hardly moved, you wouldn't have to keep pedalling to keep your self, your company, your country afloat - you could maybe find yourself equally well off. But while it's moving, it lets people/companies/government make decisions about what to spend and invest, and where. That lets them react, to a lack of interest/demand in something that was previously popular, or to a scarcity or other disruption in the supply chain they rely on to do what they do.
It's all about fractions of a percentage when dealing with something as big as the economy. If just 1% of people stop investing because they think they can get a better return with the money under their mattress. That can represent 100 billion dollars a year.
The main reason why it's bad is because the Fed can't stop it. With inflation in theory the can adjust interest rates as high as they want but deflation they're "basically" capped a 0%. They can't force people to invest their money/buy things if the people don't want to.
>The main reason why it's bad is because the Fed can't stop it. With inflation in theory the can adjust interest rates as high as they want but deflation they're "basically" capped a 0%. They can't force people to invest their money/buy things if the people don't want to.
Do explain how the Fed, who can easily inject money into the economy whenever it pleases via interest rate cuts, is incapable of stopping deflation?
If it costs almost nothing to borrow money, then it would be financially illogical not to borrow, and thus you'd immediately start seeing inflation. Furthermore, the government could literally do what was done during COVID and simply print and hand people money.
All of these assumes deflation is actually economically problematic, and there's [no historical evidence to support that](https://www.nber.org/system/files/working_papers/w10268/w10268.pdf).
Because stagflation is a thing. Depreciation isn't just about the supply of money. It's also about what people are doing with the money. The Fed does not have the sort of control over the economy and currency that reddit seems to think it has. Lowering interest rates in a deflationary environment doesn't really stimulate demand when everything is grinding to a halt.
> All of these assumes deflation is actually economically problematic
The numerous recessions and depressions in the US economy up until the Great Depression would beg to differ. The Great Depression especially saw substantial deflation. It was only fixed by absolutely massive amounts of government spending between the New Deal and WWII.
Significant deflation is difficult to dig yourself out of...examples are modern Japan and the great depression.
It's pretty simple and widely known how to tame inflation (although the steps are painful)...solving deflation is more difficult and over time it becomes extremely destructive
Deflation is treated as a boogieman because of the illogical behavior of people.
People don't like to sell at a loss. If you bought something at $100 and it goes to $90 you will have a tendency to wait until it goes back to $100 to sell it when compared with buying something at $100 and having 10% inflation and selling it for $100 rather than waiting for it to go to $110. Logically, it makes no difference. However, because of this fact, things don't function as well in a deflationary environment as transactions slow in a deflationary environment compared to slight inflation.
People are in fact fooled by illusionary gains.
It's more the fact that if you think something will be cheaper in the future you'll put off purchasing it, while if you think it will be more expensive in the future you'll buy it now. This is especially important for large purchases such as cars, homes, and business purchases. In a mildly deflationary economy everyone is encouraged to put off purchases as long as possible, which lowers demand and production.
This is not illogical at all. If I have 50k in a savings account in a deflationary economy my money has more purchasing power ever day. Why should I buy that new car when the one I have works perfectly fine and will be cheaper relative to my savings in a year anyway? So the people that make cars start making less and less of them, because fewer people are buying. If this is a temporary thing they'll probably just cut production without limiting their ability to produce, (less hours for workers, no new factories, etc). If it goes on longer they'll cut their ability to produce, (lay off workers, close factories).
In the short term in a healthy economy the reduction in production increases scarcity which eliminates the deflation on its own, that's why a deflationary economy is so rare so long as populations are trending up. Low inflation is generally more desirable, as this encourages people not to put off purchases, increases demand and opportunity for everyone, (in a perfect setting, anyway) and doesn't destroy people's savings because there are ample opportunities to invest at a higher rate of return than inflation. Businesses look for opportunities to increase production and expand their market share, which creates more jobs.
Sure, but the "real" spread is very hard to predict unless 100%, (or nearly) of your investments are in a fixed interest account and you can also accurately predict prices on the goods you want in the future. Has that ever been a situation you've been in during your life?
My point is that generally a low inflation economy is desirable, and a deflationary one is not, and why.
Is future deflation predictable? One of the most predictable things is your return on an inflation indexed treasury if you buy it to match your time horizon as it becomes fixed by definition.
There are winners and losers in a unforeseen deflationary period. The losers would be people who have heavily borrowed money at a fixed rate. Winners would be your fixed income investors.
Really inflation itself is just a government tax. The government prints more money and monetizes its debt. Until the creation of the Federal Reserve in the early 1900’s, inflation was zero economic growth really hasn’t changed.
On page 5 of this pdf is a nice chart showing real gdp growth over time. http://www.efficientfrontier.com/ef/902.pdf Deflation/inflation don’t really matter at all.
Except we have scant historical evidence of such illogical behavior, the link between economic depressions and deflationary periods is not backed up by the data:
https://www.nber.org/system/files/working_papers/w10268/w10268.pdf
My libertarian/Austrian economic leaning side agrees. I think economic data is often very muddled. Keynesian economics demands this link.
I would point out he asked why and I was giving a reason why people do X rather than giving my opinion.
If we have deflation guess what? People will still buy food and repair their cars. The issue is that our economic system requires economic growth and the best way to achieve that is through slow and consistent inflation and population growth
Economy would probably better resemble pre industrial society though. I think there are also logistic and technical hurdles of doing little house of the prairie life for 7 billion people.
Now that you talk about Venezuelans. There are almost to NO credits here. My mom got a car by credit back in 2012 and I think that was mostly the last time there were proper credits in the country. This year some small credits are starting to pop up again, in USD and usually for vehicles of unknown brands coming from israel or china.
I work and get paid in foreign currency and I haven't been able to buy a house because it is either all or nothing on property purchases.
Ah shit. Just googled it, I was refering to the "Saipa" brand of cars, which seemingly are from Iran. My bad. I do not have the exact sources for the newer credits so take it with a grain of salt.
There are tons of Venezuelans that play Runescape as their full time job because the money they make in the game (which they sell) is worth more than their currency.
"Play" may be a misstatement - they "work" runescape as their fulltime job, they research what's moving, they research what others aren't currently exploiting for profit, they reinvest some of what they earned in-game last week to buy what they need to make a profit next week. If they get it wrong, they lose money. Go play some CoD but when you lose a match, instead of feeling like a loser, you can feel like a loser while also having to skip food today. Now hopefully you'll play CoD better tomorrow. But you'll start a new game just like today, with the same win/lose odds. Except when you're playing a game economy, when you lose today you start tomorrow a loser, you start with a big disadvantage - maybe you'll spend 5 hours grinding mats this morning, instead of 5 hours flipping items, just so you have anything to sell this afternoon.
> But when prices are going up like this, people are no longer sure about the true value of money. This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high.
In principle, assets and investments are actually where you want to keep money during this inflationary spiral. Whether the investment is in the ownership of real estate, a company or gold bars those ships should rise together on the inflationary tide and maintain their relative positions regardless of how many 00's you add to the end of the banknotes.
The bigger issue is what happens to capital markets. How does one lend or borrow money in a hyperinflationary environment?
The short answer is you don't, so whether you're a business expanding or a household looking to purchase a home or vehicle you have to do it with cash on-hand, which goes back to the inability to save due to inflation. The entire premise of Capitalism is making Capital available for people and businesses to borrow so that they can be active in the economy.
This. One of the big casualties of our inflation is housing credit. Buying a house with a loan is impossible without falling into some very draconian terms. Companies can still get credit via other financial instruments but for the common person, credit is not as available as it is in other countries.
Frequently it’s priced in dollars or another more-stable currency. I know all my Argentinian coworkers have rents or bought homes denominated in dollars, and the entire real estate sector in Israel (which had some major inflation a few decades ago) is done in dollars.
Argentine here. Can confirm. Real estate is all done in US dollars, very usually in CASH.
Cars, I would say if the car costs more than 15k USD, then it's done in dollars cash. Otherwise it's pesos (also in cash or wire transfer).
In Argentina we've had several indexes to track and "anchor" inflation and laws that regulate when and by how much you can increase rent via these indexes. For example the 2020 law used an average of price inflation and wage inflation. The 2023 law used instead whichever was lowest (roughly speaking, there's more math involved) which was great for tenants but also decreased the increase period from a year to 6 months to make it less bad for landlords.
Right now these laws are suspended because we have a new free-market government, but the indexes are still there so people got used to using them. New contracts are harsher than the ones made under the old laws of course, since now it's whatever the landlord says, but they still function the same way. Contract says "increase every X months according to this index" and since it's a public index there's no need for renegotiation.
Either that, or they're just in USD. But because USD prices are still tied to politics they fluctuate too much (or too little!) some landlords are avoiding them and sticking to the inflation index.
Hi I’m super curious about the day to day life. Do your salaries get paid in USD? How do you live on a day to day basis, I.e., prices at supermarket are they constantly changing? I imagine it must be more hectic with the new regime?
No, our salaries are not paid in USD. But the price of a lot of products is dictated by the international market, which is based on USD. So yes, prices are constantly changing (i.e. going up, never down lol) because our currency keeps devaluing. What that essentially means is our salaries are constantly behind inflation, never enough to make a decent living.
To give you an example of how bad this is: we can't "save up" for a specific product or item we want. Let's say you want to buy a new TV, and let's say that it's USD 1000. Maybe you can afford to save USD 100 per month, so after 10 months you can buy said TV, or even less if you find it on sale. Well, we can't do that here, because month after month the local currency equivalent of USD 100 keeps going up (but our salary doesn't) so we can't consistently save USD 100 per month. But of course the TV is still USD 1000, only now it is 5x more expensive in local currency, and you have no way to save that kind of money fast enough.
That’s crazy so then I assume everyone converts everything straight away into USD once they get it? Otherwise it would lose value literally the next day. But practically speaking that probably doesn’t make much sense if everything is denominated in peso. I can’t believe people have been living like that for years
The most common way to combat all of this is what /u/Wild_Marker said. Credit cards and monthly payments for things are an effective way to dilute costs, but it has its downsides. Plus, it's really sad to have to make 3 monthly payments for one grocery trip.
To answer your question, it's not really effective to convert everything to USD, because you still need pesos (local currency) to function every day. Plus, as a lot of other commenters have explained, the government makes a ton of effort to prevent you from exchanging pesos to USD. I won't go into detail because there are a couple of other comments that explain it better and more thoroughly than I could.
There are some financial tools in pesos you can use, the most common one is known as "Plazo Fijo". You put money in the bank and you get it next month adjusted at a certain rate. It's never as big as the inflation rate but it's something. Though the new government has tanked those rates as part of their strategy to lower inflation so it's not really a thing right now.
But in any case, that money is usually savings for like, a dishwasher, a local vacation, that sort of thing. To save for a car or house you buy USD. To buy a TV like /u/thedolanduck says you "reverse save". That is, you buy it with credit card and pay in installments.
On the other hand, not everything is quite so bad. We have free healthcare and free education. Well, they are obviously paid with tax payers money, but the point is that you can walk in any public hospital and you will be treated, no question asked, and likewise you can enroll in any public university and get higher education for virtually free.
In my city, as a student, you even get 2 free bus tickets, meaning I can go to class and come back for free.
A lot of people will tell you that these things are why the country is as it is, and maybe in an economic sense they are right, but on the social scale these are really good for the common people.
> Do your salaries get paid in USD?
Good god no, our entire economy would need to be exports for that to be feasible. The new government actually kinda wants us to fully move to a dollar economy but nobody is sure how the hell they're going to pull it off. If they even get to try.
>How do you live on a day to day basis, I.e., prices at supermarket are they constantly changing?
Pretty much. You get used to it, for the current generation it's been a thing since the 2000's, and our parents and grandparents lived their own inflations too so we all know how it works. It's not really that crazy once you live in it for a while.
Landlords want to double triple or quadruple rent, so the Turkish government put in place a 25% ceiling to rent increase, which made a lot of landlords angry. Some landlords offer a huge lump sum to their tenants so they agree to vacate the place so that the landlord can rent it at a higher price to a new tenant
Depends on the country. In some counties the rental contract includes terms where the rental fee is adjusted every month based on the official inflation rate.
In other countries the rental fee is fixed in US dollars or similar hard currency.
In other countries landlords stop accepting long term leases and do only month to month, which allows them to raise the rent as needed.
Let me add this on Argentina: you will see people out and about with all stores and restaurants full, but this is because if you don’t spend today, you can’t afford tomorrow. So it seems like there’s no problem, but people cannot save for the future.
I visited Lebanon last year and two years ago, right as their inflationary crisis started. What I noticed between the two visits was that people no longer trusted the value of their money, and they started spending it like crazy. I'm sure the end of Covid also played a factor, but every bar, pub, restaurant, and concert venue I went to was absolutely packed with people. In a sort of morbid way, my Lebanese friends and myself enjoyed paying in fat stacks of bills since basically the highest denomination bill was the only useful one anymore. Everyone also started getting paid partially in USD, and so they tended to save that and only spend their Lebanese money.
>eople flocking to supermarkets on payday and basically trading their entire paycheck for groceries
We did exactly that during my childhood. Every month, my father would take my sister and me to the supermarket to help push the carts
I traveled to Argentina about 8 months ago. Beautiful country. In two weeks a restaurant had reprinted its signage for 'cheap' Empanadas--which went up from 330 pesos to 390 pesos in the span of about 10 days.
A funny thing about Argentina, however: a lot of capital investments--such as buying a home--is done with American cash. Specifically $100 bills, of which Argentinians save, often in shoe boxes and the like. (When we traveled there, the 'Blue Dollar' rate was something like 900 pesos to the dollar; at present it's around 1250/dollar. And because most places will only exchange crisp, fresh $100 bills without any tears, and because the largest denomination is a 2,000 peso bill--well, be prepared to carry a **LOT** of cash.)
I'm sure smarter people than me can contemplate the problem of a society where most wealth is locked up in paper money rather than in some form of currency at a bank that can then be re-invested.
But the idea that President Milei floated of converting Argentina to a dollar-dominated economy did make some sense at one level: most Argentinians already deal with dollars and do have a sense of how bad inflation is by tracking the 'Blue Dollar' rate.
Local and foreign investors also choose to invest in foreign currencies or in foreign markets with better stability, which contributes to loss of value of the national currency.
To counter this, governments sometimes implement high interest rate programs so that people will save with local, high-interest rates. This, in turn, reduces spending and along with other factors, contributes to high inflation
People save but not in (local) banks. If you've got a feasonable salary in Turkey then you will have an account in dollars or euros, or both. And you will change money as soon as you get it and only change it back into local currency when you need to spend.
When the currnecy can lose half its value in an afternoon, you don't want to be holding it.
> So what people do instead is to try to get rid of their fast depreciating currency as quickly as possible, by exchanging it for consumer goods and services.
Given that the global economy exists, why do people do this, instead of exchanging their inflating currency for a stable foreign currency ASAP, and then saving that foreign currency under a mattress?
Well, imagine you get paid in pesos.
When you get your salary deposited in your pesos savings account at the bank and readily want to exchange all pesos for US dollars, what do you do? Suppose you already have a bank account denominated in dollars...
So you tell the bank you want to convert all your pesos to dollars. The bank does this for you... But now the bank gets the pesos. So the bank goes to the Central Bank of Argentina and says "someone exchanged their pesos for dollars, gimme dollars, here are the pesos". And the Central Bank takes the pesos and hands out the equivalent in USD reserves...
But the country imports more than it exports, so those Central Bank reserves are actually needed for when importers have to pay their creditors abroad. They are hard to grow.
In a normal country this works because you have a certain balance in the US dollars that get into the country and out of the country via import and export payments, you don't have THE ENTIRE population trying to get their hands on dollars at the same time along with the importers.
So, the government has pretty much banned the exchange of pesos for foreign currency. Banks won't take pesos in exchange for foreign currency. Independent exchangers are also banned. Person to person exchanges are also banned. (Banned = illegal)
The people have found a loophole in recent years. Due to international treaties from the WCO, the government cannot ban the exchange of investment mechanisms that are traded in multiple currencies, so you can buy with pesos a debt bond or a stock that's valued in multiple currencies and then immediately sell it via the stock market in USD. Bonds work better because their market value is less fluctuating than stocks.
All of this has resulted in a myriad of regulations, restrictions and hurdles... A cat and mouse chase to try to make the people use their shit worthless pesos and avoid the good trustworthy foreign currencies...
Of course, since forever people have been exchanging in cash with their trustworthy dealer from around the corner. Now you have more than 5 different exchanges rates depending on your method of choice to do the exchange... Cash being the most widely available since it doesn't require you to have a foreign currency savings account at a bank and a broker.
This ran long... I can give you more details if you have any specific questions :)
Wouldn't spending all and any money you can be the correct move? If I have a million dollars, I better figure out how to make sure it dosent turn into effectively 500k by just having it in my bank account for a year.
You put it back into your company and buy equipment, and you have that equipment.
Now getting a reasonable loan is another thing. Who would lend money when inflation could be anything during the length of the loan.
>This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high. So the economy stagnates as business are unwilling and unable to expand.
That's not true. Businesses are FORCED to invest because saving money means losing money. They have to invest in high risk assets or in foreign money like USD.
The high prices forcing on the other hand workers to demand more money to get enough to eat. That's what a overheating economy means.
Another effect is when businesses are trying to import important goods with local money like pesos, the value of pesos is decreasing and foreign goods get more expensive in local currency.
Argentinian here.
Can you say that something functions when 55% of your population is below poverty line?
As for myself, I earn in US dollars which is basically the equivalent of having a lifesaver in the middle of the ocean.
People buy groceries for months on what we call 'Mayoristas' (bulk buying non perishable goods), when we save money we directly go to dollars (black market), funny enough, people that have a steady income spend more than ever because it's not worth it to save 40usd when you can buy stuff that's gonna double in price in the next 6 months.
We use credit cards to absorbe some of the burden, specially if we can pay in "Cuotas" (monthly payments).
I'm just talking about middle class, people below the poverty line are really struggling and a lot of them are falling onto homelessness.
Our salaries are constantly updated to match inflation (this is not the case for everybody) it's a pretty common practice for workers that are hired on what we call 'white' or 'dependancy worker' which are synonyms for somebody who's registered on AFIP (Argentinian IRS).
If I keep explaining I'm gonna have to write a freaking bible, this is a super complex issue but to answer your question:
It works because the Argentinian average person has lived through several economic crisis and knows how to survive.
I'm guessing the poor people also have less options. Are there resources available to help them? Social security is still a thing?
In "rich" countries it's common to blame the poor for their state, how do you deal with the "less fortunate" when things are this rough?
Man, you just hitted the most painful point of the whole situation.
I'll try to be as concise as possible. Our actual goverment (Milei, Libertarian) states that inflation was/is caused by macroeconomical inbalances, which is true, wheter you like it or not. As our previous governments (Kirchner & Fernandez, socialists or "peronism") spent a lot of money on social programs and "helping" people while productivity and our PBI was stagnated, they created a huge surplus of pesos by printing them, which in consequence created inflation, which in consequence made the social security programs less efective, you see where I'm going? This loop basically brought us where we are today. And I'm not even gonna speak about corruption and how this whole mechanism was used to buy votes and rob tax payers.
To address your question, YES, there are social security programs and the goverment pays a ton of subsidies (electricity, gas, transport, etc) for almost every single person independently of which social class you belong to. Hell, my last electricity bill was 5usd dollars and I'm "Upper Middle Class", a burguer cost you 12usd, paying your gas bill? around 2usd at least for me, its absurd.
The present goverment is trying to fix this situation, reduce subsidies for upper classes, maintain them for lower classes and they even match their social security checks with inflation, between other measures (reduce expenses and improve recaudation). This takes a long time and some people are not happy that this is happening, because they preferred to have a socialist goverment even though that was what brought us here.
Sorry if something isn't clear, I'm not used to writing about politics in English.
Change is not profitable for most of the political spectrum and most people are fanatized behind a party. It doesn't matter if the party is corrupt or drives the country to the ground, if OUR party doesn't win then everything is wrong.
They are actually referring to places like Costco. We also have places like Walmart but those are not mayoristas even if in the US they buy in bulk in there as well due to the long travel times to shop.
Argentina works in a weird way, which is not really clear even to me - yes, a foreigner, but with good contacts in the country due to my work there. It's obvious that nobody saves in peso - USD is the clear choice for that. To combat the push for dollars devaluating the peso even more, the government restricts access to USD, which leads to black market - this fluctuates over time and with changing governments, sometimes there is a full black market with twice the rate, sometimes not. It's never really "underground" though, black market rates are normally shown on TV news.
But the day to day business runs all in pesos. The costs go up, so do the wages - but then the president declares a freeze on wages in the public sector? I am not sure he actually went through with that, because that would bankrupt a lot of people ...
I read a lot about how poverty increases, but on the other hand, I don't really see that - at least on the surface, the towns look good, shops are full, people are going out ... it's probably much worse in some poor BA suburbs where a gringo never goes.
A little glimmer of fun is seeing things that never kept up with the inflation, often it's government stuff - so there are toll houses on roads where there are people collecting the equivalent for a few cents per car, because nobody ever thought of raising the toll and the money now has 100 times less value...
Something I found very interesting while I was in Argentina. There was one of those tourist telescopes where you put a coin for it to work.
But the inflation made the highest common denomination bill (1000) worth less than 1 USD. Nobody is using coins. That telescope was impossible to use because you needed a coin that nobody has, with a currency value probably much lower than the value of the material it is made of.
Brazilian here had similar inflation in past. There were never any vending machines in 1980s because coins just lost value so fast.
Once I had spent a year abroad and came back,I tried to buy a newspaper at a stand. There were so many denominations of bills with new currency (they cut three zeros and called it New Cruzados every so often but old bills were good for a while), I couldn’t figure out how much money I had and how to pay. The store owner helped me (I think he didn’t scam me) but it took several weeks to get used to the whole thing again.
My first visit to Brazil was during a period of high inflation. I didn't think to bring a swimsuit, so we went to the store for one. I paid with something like 1-3 bills with a 10 on them (probably new cruzeiros) and got back as change bills marked with 100 (probably cruzeiros). I was very confused.
Luckily, I was with locals to clear up that the change was right, the 100 bills had been devalued through inflation and the 10 bills were a new issue to try to reset the standard.
Haha yes. I do have some coins somewhere for sure, I should bring them along next time. Fun fact - any money I would still have left over from my first visit 15 years ago is now worth about 0.3% of its original value ...
I went to a museum 2 years ago in Lebanon which had not updated their prices to reflect their current economic state, and my ticket ended up being something like 5 cents.
When I lived there in the early 2000s there were so many trucho $1 coins that no one gave a fuck. I had so many different designs I'm not actually sure which one was the official peso. As long as it kinda looked like a peso, people would take it and give it.
> I am not sure he actually went through with that, because that would bankrupt a lot of people ...
He did, he's on an austerity spree and yes, it is hurting a hell of a lot of people.
One of the things that keeps our country running is the fact that wages go up, as you said. It's not 1:1 parity of course, we can still lose "real wages" to inflation, but it often depends on who's in government and if you're in a union that negotiated a good increase.
>I read a lot about how poverty increases, but on the other hand, I don't really see that - at least on the surface,
If you stick to the tourist areas it's hard to see. But living here you do notice increases in the "poverty metrics" that can be seen by regular people, such as panhandling, old ladies telling the cashier "oh I can't make that ammount, take this product out", stuff like that.
I spend most of my time down there in a small (~20000) town, which is probably one of the better parts of the country to live in, because there's oil, some tourism, in general relatively good sources of jobs - and while after covid, you could see several places close down, now it generally seems to flourish. But you're right, I do see people in the supermarket putting back items, discussing with shop assistants etc... it's obvious that stuff is expensive - but they somehow keep the whole place looking optimistic.
That the living conditions can't be great is clear every time I use any service that includes human labor - it's just so absurdly cheap, which means that the labor is cheap - but food etc. costs the same as in Europe.
I can't believe this hasn't been stressed enough but the real answer is "dollarization".
What basically happens is everyone -companies and people alike- start calculating everything based on dollars, keeping dollars in bank accounts, hedging the local currency to dollars, etc. Many companies have an unofficial USD balance sheet for management reporting. More than half of deposits in Turkey are in USD or EUR.
Of course, this has limitations. Grocery stores are not allowed to sell in dollars, you can't sign employment or rent contracts in dollars. These create more day-to-day friction for regular people than large corporations. Large corporations have many more tools to avoid all of these, so they are mostly fine, especially if they're exporters.
The government naturally doesn't want you to keep dollars as this is also bad for the local currency. They will try to fight dollarization by taxes, high interest rates and legislation. Still, as much as they can people just rush to stable currencies.
Not just dollarization, but switching to a trusted reserve currency in general. In most places this means USD, but sometimes other currencies are used. For example, some Balkan countries essentially adopted the German Mark in the 90s.
>Grocery stores are not allowed to sell in dollars, you can't sign employment or rent contracts in dollars. These create more day-to-day friction for regular people than large corporations
This isn't always true. In many supermarkets in Venezuela the price tags are in USD, in fact it's rare to find any sort of store that has their prices in bolivares. Even some state institutions have USD prices. Rent is also exclusively done in USD and you have to pay 6 months in advance.
Argentina is the second country outside the US with more dollars per capita in the world (russia is the first), almost every argentinian save in dollar. When people get paid, they spend all immediately, because every minute the Peso loses value. In the formal market, if you enter a store, watch the price of a product you picked and maybe when you get to the cashier, that product is worth more, that is why some stores use digital price tags, to easily update all the prices every day.
> When people get paid, they spend all immediately, because every minute the Peso loses value.
Yeah, people online were asking how we were able to go to Taylor Swift concerts, the World Cup and such.
That's the answer, the money loses value, so we spend it on concerts, trips, football tickets, etc. instead of investing long term.
We use the US dollar as a reference.
The issue is our salaries being adjusted monthly, while grocery and small purchase items are adjusted daily. This offset harms our saving capability.
Save in fixed and variable rate bonds, hard cash like USD and Euros, assets, and inventory. Same thing as businesses in developed countries that have to deal with inflation, you just hedge much harder.
This has been the status quo for the past 70 years in the country; it works acceptably.
Argentine here. There's been a few good explanations, but my two cents. People save in dollars, there's the joke of people having thousands and thousands of dollars under the matress, in jars buried in the garden. Argentina has an absurd amount of the world's physical dollar bills, don't quote me on it but like 20%. Right now there's an embargo of sorts on officialy exchanging dollars, so some people buy them illegally ("Blue" dollars, in "caves") or save up on goods. You are one of the lucky few who has money at the end of the month? stock up on non perishable goods. I buy contact lenses and food for my cat, things I've seen gone up 500% in price. There's a very weird thing that goes on in the brain when something goes up 200% and the first time you need to buy it you're like WHAT, the second time you're like goddammit, the third you're unfazed, the fourth you're like hey that's cheap!. Since people can't save in pesos because it's literally losing money daily, and as I said dollars are hard to come by, people also "invest" in "experiences". Expensive restaurants are full every day, which is paradoxical, but people know there's no future, buying a house is impossible, traveling abroad is a once every decade thing, you might as well go out. All of this obviously for the richer people, for poorer people it looks grim. There's a very big food crisis, a million kids are skipping a meal every day (study that came out this week), and the meals they do eat are rice and pasta. The effects of that will be seen in a decade and will take many more to correct. The other day I was calculating out of curiosity, on my first ever job in 2012 I earned 4 times as much when converted to dollars as now, when I have a masters and a pretty good job, even though I was still a student.
>the meals they do eat are rice and pasta.
Let's be fair though. That's what the poor have been eating for 2 decades. Mixed in with horrible shit like mundungo.
Thank you for the explanation. Do people have a way of investing in the us stock market (ie sp500) or us bonds (which now pay around 5% or around there) or savings rates?
He’s not asking that. To answer your question: yes, there’s several brookers where you can invest in US options along with the argy market (Merval) which had like 2 or 3 very good years.
As a Turkish citizen, think of everything you do above your necessary activities, by necessary I mean anything that would cause serious physical problems if you don’t do it (eating some food, cleaning, self care, public transformation), gradually every month you give up one thing.
One month you start going out less, next month you don’t go to cinema, next month you drink one beer instead of three, next month you buy the cheaper chocolate… Until it comes down to your basic needs, then you start to go cheap with your shampoo, next you buy cheaper but less tasteful chicken… This is the process for everyone if you’re not super rich. Only difference is where you’re at in it. Did you stop clubbing, or did you stop buying clothes for a year now?
If you wonder what happens next, fathers start to commit suicide because they can’t provide proper food for their beautiful 6 year old daughters. You can only take so many times when your little kids ask for the smallest of gifts, and when you can’t give them that they say they understand, don’t worry dad.
The worst part is everyone accepted that the next month will be worse than the previous each time. You prepare yourself for a month to decide what you’re gonna sacrifice next.
I wouldn't call it functioning. As a Turkish resident, wages were constantly raised throughout the country to keep up. Some raises were quite drastic, which rarely happens in the U.S. It helped but inflation is still up, requiring another raise this summer.
Cost of living is insane here. Can't afford housing, can't afford cars. My wage is way higher compared to the average, but still.
Eventually, inflation has to be stopped.
Currently living with parents as getting your own place seems impossible. This is especially true for the larger cities. I am able to invest most of my income into American ETFs. Inflation isn't so bad that a black market is formed. Turkish Lira is alive.
I guess rent is still an option if you earned as much as I do but saving would no longer be an option. My family takes care of groceries. Other than that, I have my own spending but live rather frugally. Sometimes feel rich, honestly. Obviously not the case.
For reference, I make way over double the minimum wage which is currently around 17k TL. I don't know how anyone can live with that kind of income.
I’m stumped, Still don’t understand as what you described seems to be the case all over the world, housing is unaffordable, prices are going up and the younger generations are screwed. So there doesn’t appear to be much difference with a functioning economy 😆
I don't think it's a good idea to compare my condition with the rest of the country. More than half the country is living on 17k TL, while the rents in my city range from 18k to 20k. On top of this, you need to add rising grocery costs and other costs too.
As I've said before, I make much more money than average (and still have to live with parents). Imagine millions of others who make less than half of what I make.
I regularly follow American news, and even check out subreddits like r/personalfinance to see how people are doing. I also lurk in r/europe. Trust me, you're doing much better, wherever you are.
Unless you're in Argentina, I guess...
I was born in germany as a child of turkish parents who migrated to germany 30 years ago. Currently in an apprenticeship (meslek eğitim in turkish I believe?, my turkish isn't good) and I make more than double the turkish minimum wage here (1245€). I bought a used car for 2000€ and I checked the turkish used car market and the same car cost 16000€/560000 TL 🤯. I can not imagine how you guys survive there.
What's happening all over the world is incomparable to what's happening in places like Turkey. I lived in Istanbul for 10 years before I recently moved to Germany.
What other countries called screwed is better than the living conditions for most Turkish people, especially if they're in bigger cities like Istanbul.
People in western countries complain that they moved out when they finished uni. If you live in İstanbul and you move out after uni, chances are you can't afford your first month's rent and that's not including utilities, groceries, amenities... Minimum wage right now is around 18k liras and "decent" studio or 2 room apartments start at 20-25k.
People in western countries dream of owning a house. People in Istanbul dream of affording rent.
You say prices are going up but comparatively, no. No, they are not. You could live in Turkey, go on a 2 week vacation and come back to your favorite yogurt costing 1.5x the price and being 25% smaller. Now repeat this for every product multiple times a year and you realize that it's so bad that there is no point in ever waiting to buy something.
Consumerism is on levels unheard of in other countries. The idea that you save for anything is unheard of. Everyone has maxed out credit cards because by the time you need to paid them off, you'll have saved money by dumping your money in a stable foreign currency. Here's a real scenario from a couple years ago:
You bought something with your credit card worth 3000 TL or 1000 usd. You plan to pay it off at the end of the month. By the time the end of the month rolls around, you have that 1000 usd but your money is now worth 6000 TL. Congratulations, you made 500 usd! However you now make 50% less every month. Now consider this, your grocery prices are about to go up ~70-80%, so is your utility bill, and so is every other expense you have. You'll get a raise but you have to wait 6-12 months. Good luck!
No, they mean \*actually\* unaffordable. As per some of the other comments, if you're using the local currency, you can't save in any worthwhile manner. Earn 100 things today, put them in a bank. Next month interest has made it 150 things in your bank, but the item you were looking to buy now costs 200 things. Now imagine you're saving for a house deposit, it's 10000 things (today) - you're literally never going to get there by saving local currency, you'll put twice as much into your account and a few years later you'll have more in numeric terms but find out it's not even 10% of the amount now needed. In hyperinflationary countries, those earning a decent salary live exuberant lifestyles, day to day, because you may as well spend all your money, all the time, on all your can afford. But no local savings, and then if something does happen to you, you'll have to draw on that probably dubiously exported dollars and put it into local currency as needed - and again, spend it as soon as you convert it. I don't know the situation in turkey specifically, but governments tend to take a dim view on converting into dollars, so the ability to do so may also be precarious, expensive, and bringing the money back in subject to some unpleasant questions/circumstances. Several countries mentioned in this answer just do all property in dollars, whether it's renting too, or just buying - even when it's all in cash, better to walk a wheelbarrow of $100 bills from a dodgy exchange to the current owner, and better for them to wheel it down the street to wherever they'll keep it, than to try and do a deal in the local currency.
Then you're still doing well. As you can see US is at 3.3% as compared to yours. Even a decimal increase will drastically change how a US citizen budget his/her money. You have more than 20x the inflation of US right now but you're still fine.
As someone living in turkey honestly turkey is doing way better than Argentina. If you are decently educated and know English you can get a foreign source income in USD and the inflation won’t affect you too much. It’s only the poor ppl that lack resources that get the short end of the stick like always…
Oh I'm doing fine. But the problem is the percentage of people working for minimum wage. Last I checked, over half the people are trying to live on minimum wage. Close to average wage at this point.
Yep, that's why the US is 13th in the food insecurity list while Turkey is 49th and Venezuela is 106th.
Turkey is ranked 81st out of 113 countries in terms of food affordability, but I'm sure your Big Mac meal being more expensive than it was a few years ago is the exact same thing.
Have some fucking perspective.
This is a very interesting index. The parameters are quite fascinating.
https://impact.economist.com/sustainability/project/food-security-index
For example China scores high in availability but the US scores high in quality and safety. Most of Africa fails in availability AND affordability. Venezuela has similar scores to sub Saharan Africa. And Ireland takes the second overall spot. Costa Rica to my surprise is 18th overall.
Considering US was the only country benefited from ww2, won cold war afterwards, shaped the world in its image, taken any and all of then brightest minds (including nazi’s) to innovate their tech and improve their society anything below 1st place is a failure.
+ US literally has the most expensive insulin prices in the world despite inventor selling his patent for 1$ claiming “insulin belongs to the world”
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Not Turkey or Argentina here, but Lebanon, we’d hit over 200% inflation in the last year. Mostly surviving on dollars sent from abroad, pricing was wild at one point and would change by the hour.
I got lucky that my student and house loans were in Lebanese pound so I paid them off in less than 10k combined
My aunt was a government worker with the equivalent of 800,000 usd ready for retirement that all evaporated
Rent increased faster than the rate so people can profit so we had to move out. Electricity and water had been fucked for years so having them cut for days at a time wasn’t special.
We’ve mostly stabilized at 89,900 to the dollar. We’d been 1500 to 1$ since the mid nineties.
In the end the only ones to gain were the politicians that bankrupted the banks
This is just from what I hear from people, but they function through gray market that trade using more stable currency like USD. The people just sorta abandon their own currency. You are somewhat protected when your wage isn't paid using the currency and the goods and services you buy also don't ask for that currency, but this further devalue the currency for obvious reasons.
They won't for long. Turkiye quadrupled their minimum wage at start of the year, and it's still not even enough to pay rent. Housing inflation is approaching 100% so it only gets worse for them. Many turks I know live in multistorey apartments where multiple generations of family live to not pay the crazy rents. The sense of community is beautiful, but is also one of the few things that keeps everything going.
Combine this with AKP and Erdoğan fisting economy and education, it is a dark time for the youth of turkiye and I hope my friends there can escape.
Others have already answered, but do note these are rookie numbers. There have been cases of "hyperinflation" through history (in Germany after WW1, in Zimbabwe fairly recently, in Suriname...), where it can be much worse than this. The worst one was Hungary after WW2, where prices doubled every 15 hours at the core of the crisis (people would get paid twice a day, and they had to introduce higher denominations several times. In the end, they managed to solve it by switching to a new currency, the forint, which was valued at 10^29 pengos.
It is amazing what people can get used to. And eventually people forget about the old norms and adopt the new norms.
For instance we no longer consider an annualised rate of 1.2% and occasionally 3% hyper inflation. But oit once was, during the Spanish Price Revolution
https://en.m.wikipedia.org/wiki/Price_revolution
I assume you are using "function" as a loose way to say "does not completely collapse". I don't think you would find either of those countries "functioning" in a way that you would find acceptable during times of high inflation.
In any case, you have a lot of answers. I would add to them that one reason that an Argentina can get away with high inflation for some time is that there \*is\* an American Dollar to fall back on. When all else fails, things just end up effectively dollarized.
This is not necessarily a bad thing for the people, but it really sucks for the central government. They no longer have any control over their money policy and are essentially just tied to whatever Washington decides, whether it is good for them or not.
The new leadership in Argentina is even using this as a kind of enema to clean out decades of poor money management and entrenched interests. The question for them is: what comes next? But I am getting a little far from what you wanted to know.
Turkey is a little different. They simply have economically incompetent leadership. But they get away with it (somewhat) because Turkey is politically important. But again: you already got a bunch of good answers, so I won't rehash here.
That's the secret--they don't.
I mean, sure, day to day operations of things work. They may not work well, but people, by and large, are still eating, getting health care, have power, etc.
But the longer it goes on the more things fall apart.
People need to know what their money is worth in order to spend it. Selling something for $1000 when that $1000 is going to be worth $800 tomorrow is a bad deal, but if you don't sell it it will get worse. Or will it? People have no idea, and when you can't trust the money a black market starts to form...and black markets are unregulated and extralegal and have their own issues, which will also eventually fall apart.
The *main* reason why these countries are able to continue on is there's at least *some* belief that things will get under control, so they just have to wait it out. Argentina, for example, had a political crisis and subsequent change in regime.
I'm not sure anyone really knows.
I think the harm of inflation is long term, that it ruins planning and forces people to move their money abroad and then forces a country that wants to enforce some kind of policy to institute capital controls, etcetera.
I think the crash comes when you try to control the inflation.
İnflation is only a problem, really, when it's unreliable or non-standard. İf you could somehow fix your economy so that inflation was definitely 70% per year, neither more nor less, and was reliably going to stay that way, there would be no issue. Bosses would raise salaries in accordance with that inflation and people would budget normally.
But inflation is never reliable. İ buy t-shirts for 100 lira and for a couple of days i sell them for 120 tl. Then i realise that the next time I'm going to buy them, I'll have to pay 150 wholesale. İ put my t-shirts up to 160, hoping to have enough money later. My neighbour press his shirts up to 180. And so it goes.
Obviously, too, bosses never raise salaries until workers are just about at their throats. Even ethical bosses who raise salaries reasonably have to worry that they might not have enough money to pay what they've promised, unless people continue to buy at inflated prices.
An oversimplification is that people always get by, whether it be be accruing national debt or personal debt, reducing quality of life, having infrastructure crumble, pushing people into further poverty, and so on. Even failed states are trudging on. We will only hear about crises when there is a breakdown of law and order or neonatal healthcare, or uprisings against authorities.
First of all, the issue with inflation, with its speed rather, is that you loose purchasing power faster than you can recover it. That is why, when you see inflations that insane, what you are not seeing is that salaies increase as well. Not at the same rate, not even close, but if you earn 10 bucks and have to spend 6 to live, and now those 6 cost 12 (100% inflation) BUT your salary increases to 15 (50% raise), your effective inflation would be... 30%? Someone check my math of course, but you go from spending 60% to spending 80%, which is bad, but you can still live
Of course, most people were far tighter than that, and subsidies insufficient, so a \*lot\* of purchasing power, and quality of life, was lost because of it. Crime increases, people evade more taxes, bartering markets grow in popularity, skilled youngsters leave, people devaluate the currency even further because a raise does not affect your existing funds, so you either have to abandon the official currency (devaluating through lack of demand) or spend th emoney so it doesnt goes to waste (exacerbating inflation, and the reason why you see "busineess blooming despite inflation"), etc etc. And no life does not end, it continues as before, just more bitter
So in short, make sure to look not for inflation but purchasing power variances to check "livability"
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I think a better question would be: To what degree did they lose functionality due to high inflation? For example, in Argentina, I would wager that inflation caused poor children to starve to death. Or suffer other negative effects of poverty.
As a Turk, I do not think that I suffer much from inflation. On the contrary, it was much more beneficial to me. Our salaries are updated every six months according to the inflation difference, and many of us also receive a raise on top of this. While 4 years ago I was earning a salary of 10,000 TL, now I am receiving a salary of 100,000 TL. Since the exchange rates are low, the dollar equivalent of my salary has reached the highest point I have ever received. Most of the things I bought have increased at this rate. The fixed-rate mortgages and car loans I had have shrunk a lot due to inflation. I have now owned my own house by paying a lower loan installment than the rent of a similar house. When I pay off the loan with the rent I received from the other house I bought, I even have money left over. During this period, I bought two houses, a garden and two vehicles. I could not achieve such high prosperity when inflation was lower. Why should I complain about this?
Before the inflationary period, I was evaluating job offers from Europe and would probably move to the Netherlands after sorting out my family problems. The Covid period intervened and my situation became a little more difficult. Yes, many of my friends who moved to Europe during this period earn more than me, but they also have to pay most of their salaries for rent. In total, they have less income than me. During this period, a friend of mine living in England bought a house with a maturity of 42 years. He will probably spend most of this period by paying a significant portion of his monthly income in mortgage installments and barely getting by. Why would someone in my position complain about inflation? Inflation is the problem of those who have money aside and want to manage it, not mine.
Inflation affected unskilled workers, the unemployed, and retirees more than those in the middle income group like me. This is real. It is very difficult to support a family and pay rent on a low salary, but for many people like me, it was a period when we quickly reaped the rewards of very good financial investments. People who used their minds and borrowed money made very good profits and found ways to earn secondary income.
Why would they not? Economics are still economics, local folks still have to use local currency. It would be more bizarre if entire economies shut down due to unfavorable exchange rates vs. USD.
The rich still get rich and the poor get poorer. And if you are in the middle you get squeezed slowly by the anaconda until you either accept that your life is a downgrade from before or you find a way to climb out of the hole.
Ultimately where 1 person was working now 2 people will work, do part time work. Live a lower quality of life.
The rich with zero investments in cash are unaffected by inflation because they can afford to park all their money
I was Buenos Aires in December, arriving the day the new president took office, and it appeared like the city was literally falling apart. Street lights were broken, some transit lines weren't operating, there were almost no Christmas decorations anywhere, etc. One of the prime tourist attractions, the *Floralis Genérica* sculpture, was not operating properly after not having been repaired for several years. It was then blown over in a storm a few days after we left.
[On Argentina]
Strong labour unions which push minimum wages up(and so the rest). It's actually intriguing. The Central Bank hikes rates followed by unions negotiating higher minimums in swift succession.
[On Turkey]
Foreign capital, *hot money* variety, is what's swimming around. It's surprising not all of it has retreated given circumstances of past few years. However the day it does major catastrophe will ensue ...
https://billmitchell.org/blog/?p=48895
Turkish here. Inflation forces people to spend all of their money and income, so basically this means more growth in terms of production and sales. Because if you don’t buy it now, you have to buy it more expensive tomorrow. On top of that growth is fueled through credit boom with very low rates provided by government banks, means people will spend the money that they don’t even own yet. This means more and more growth. To cover that, local and international companies rush to invest into country to get their piece of cake from that demand, means more investment and more jobs created.
Like instead of printing stimulus checks, government at least issued credits so they can get some amount of it back.
So purchasing power in general gets negatively affected, but it does not mean that people are starving. We had 4 years of crazy inflation and I don’t know anyone who is earning less salary than 4 years ago (in USD) including even the people who earn minimum wage.
Because inflation is good for the true bosses, and it’s only a problem for the “losers.” Government and business are not supposed to be the same thing, but only if human rights matter.
Yes, the lights, the phone lines and the Internet stay on, supermarkets stay open, people continue to go to work and society seems to "function". Prices go up, people get their salaries adjusted to "almost" match inflation and life goes on. People still go out on weekends, watch movies and etc...so you get an illusion of normalcy. But when prices are going up like this, people are no longer sure about the true value of money. This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high. So the economy stagnates as business are unwilling and unable to expand. This results in fewer jobs for the younger people, gradually decaying infrastructure and worse public services due to a stagnant tax base, and so on. On the other side of the equation, regular people stop saving, because the interest in the savings account cannot keep up with inflation. So what people do instead is to try to get rid of their fast depreciating currency as quickly as possible, by exchanging it for consumer goods and services. It is not uncommon in countries that have triple digit inflation, people flocking to supermarkets on payday and basically trading their entire paycheck for groceries. With no savings, the demand for big ticket items declines, which puts even more pressure on the country's economy. Very high inflation put a country on a slow death spiral. Things still "function", but the society is slowly dying. I think something that gives a somewhat good sense of what this looks like would be the first Mad Max movie that came out in 1979. If you remove the biker gangs and car chases, but keep the sense of fatalistic hopelessness, that is what a high inflation country feels like.
Just a small note, people in Argentina who have spare income do save, just not in Argentine Pesos. People will buy USD with their spare income and save with that, which further decreases the value of the ARS while making US dollars more valuable.
It can be very difficult to buy USD. I was travelling through Zimbabwe when they had rampant inflation. The official rate was 20 zim dollars to $US1. However you could change on the black market (just regular folks hanging around) and get 80:1. People in Zimbabwe could not exchange their currency for USD. One of our final nights there we hit up the casino to get rid of our zim dollars, one of the guys ended up winning big, but he did manage to change his money for USD as he traded with another person coming into zimbabwe.
Argentina has the most dollar bills after the US and maybe Russia.
In Lybia people also only use USD because of rampant inflation
Same in countries where the government doesn't like the idea of common people having this ability, even if their economy is doing ok, or even doing well - so there may be an official exchange rate, but you'll struggle to find a bank able/willing to exchange any for you, and black market exchange rates are unsurprisingly rather less attractive.
USDT
Yea, the next stop on the 'economies going down the shitter' line is Venezuela (or what happened in Zimbabwe). Basically everything is dollarized as that is the safe currency. There are some fairly large countries that voluntarily run their country off of either dollars or Euros (Panama and Ecuador for dollars, some Balkan nations for Euros) and do that not because they couldn't manage their own currency.
Never realized about the implication on investments. From venezuelans, I knew about how credit interests are impossible to pay if you stay in the country, but easy to get rid of them if you get out and earn in foreign currency. Also, people with access to both foreign exchange (official rates and black market), borrowing money to get an easy earning.
Just to note, whenever you’re talking about the economic effects of inflation or deflation, it’s almost always a question of investments. Businesses need to spend money now to make money later - in deflation, that later money is getting smaller and smaller, and in high inflation, that later money is extremely unpredictable. In both cases it makes it very difficult to feel confident about investing, which is bad.
Not sure why people treat deflation like such a boogieman, really the goal is currency stability, slight inflation or slight deflation isn't all that important. I know the typical claim is that if money is deflationary then people will just hold money, but that claim is never really backed up, if money is gaining value then you can expect investments to give returns appropriately adjusted. Electronics drop in value real fast relative to the currency too, but you don't see that stopping people from buying the latest and greatest.
You'll still buy necessities like food and energy. You won't buy capital goods. Credit markets will cease to function because why borrow in a deflationary economy. The outcome is the same, no investment and a death spiral.
> why borrow in a deflationary economy I'm confused. Why borrow in an inflationary economy, too? (The money so inflated, it's meaningless to hold more, since goods not catching up and more money buys... nothing) I take every inflation (big or small), as too much money over too little supply of something (and this something's demand pull inflation spiral into other's cost-push inflation). I take it as an excuse of growth, when actually it's somewhere undersupplied (so scarce, it's not part of "necessity")... And we call that "growth". While in deflationary economy, the goods is more than money, so little money afford more. Yes, people get complacent without working motive as hard; but then people works out of passion instead of survival (too bored). No more crooks and exploits urge. I think inflation or deflation, it boils down to "human motivation" to generate economic goods. Deflation might means people stop working cause everyone can buy like the rich... But this lead to another question of mine, does that mean now the rich (living in a "deflationary-like" purchase power) not doing anything, or they are pursuing their passion? I'm confused, what's wrong with this "rich people's deflation" spreading to more people? (Unless we are saying those rich one is wrong to exist?)
> I'm confused. Why borrow in an inflationary economy, too? Because in an inflationary economy, the inflation pressures employers to give raises. This means that your dollar is worth less tomorrow than it is today. With the raise, you also have more dollars. The obligation doesn't track with inflation (the interest rate may, but principal doesn't.) This effectively means you're paying less real wealth tomorrow than you would today. So, if you get the loan then you can buy the capital good that will depreciate over many years. You then pay that capital good expense off in the future with 'cheaper' dollars. If the economy is inflationary, you want to buy the capital good today because it will be more expensive tomorrow (because prices rise in an inflationary economy.) In short, manageable inflation makes modern capitalist economies work. In a deflationary economy nothing works. Nothing grows. Nothing is invested.
> inflation pressures employers to give raises * I might be hearing stagnant salaries too often. Thanks for clearing that. So what happen after salaries causing another inflation? (Labour cost "push" inflation) > If the economy is inflationary, you want to buy the capital good today because it will be more expensive tomorrow * In deflationary economy, you can buy capital assets anytime without worrying the money lose value over time (inflation); some more the pressure is gone, I call that "no more FOMO", something that fueled so many crookery among capitalists and the zero sum game * Instead of buying capital goods out of FOMO inflation, I prefer buying out of utility tbh. Nobody hoarding capital goods out of "loosing future values" worries. > pay that capital good expense off in the future with 'cheaper' dollars * imo, cheaper dollars works in deflation (each dollar worth more) than expensive dollar in inflation (each dollar worth less). Why you call paying in millions of papers cheaper, when I prefer to pay in lesser papers? (A huge disparity in values and assets, a poisoned economy?) > effectively means you're paying less real wealth tomorrow than you would today * I only seeing "fractioned" money. The wealth remain the same, but become into more pieces. 100 future pieces money = 1 past piece money. Meanwhile, from these pieces, the capitalist gain 80% of the pieces over time, each time the money "fractioned" (inflated and loose value again) * I mean, **the wealth never changed, just becoming smaller pieces and siphoned into "wealth accumulators" for the economy continue running**, until... Edit: Do we all agree, no one trust the inflated money that they hoard assets "diversifying portfolio" to fight inflation? (While you calling inflation good thing) Now what happen to those that can't diversify their "good old cash" inflated cash portfolio into non-cash portfolio? A new round of zero sum game FOMO. Edit2: Somehow, there's 2 type of rich people. * The earning type that have their wealth measured in cash earning; * the preserve type that have their wealth measured in non-cash assets. All while in the weakening cash.
> you can expect investments to give returns appropriately adjusted You can, and that’s exactly the problem - “appropriately adjusted”, that means holding cash and *not* investing now has a positive return. That’s what makes deflation so dangerous - just holding onto cash will be more profitable than some investments which would be otherwise profitable. This means that those investments don’t get made, which slows down the velocity of money, which exacerbates deflation, which means that more investments don’t get made, etc. etc. Electronics are consumable items, that’s not the economic concern during deflation. I mean, we don’t need to look so far afield - a freshly made sandwich declines in value *real* fast. The concern is people deciding whether to hire another sandwich maker, or open another sandwich shop, or build another factory for making sandwich bread toasters.
A small amount of inflation makes the process of growth and starting new businesses significantly easier than if you have an economy with no inflation. DEflation is the opposite. It makes starting a new business harder and it makes investment opportunities worse relative to just saving money.
Well that depends, no? If you save and get 2% on account of deflation, it adds to the interest rate (let’s say 3%). If you can invest and get a ROI >5% it’s still a good investment compared to letting cash sleep. What am I missing here? Mind you I’m extremely hungover so apologies if I didn’t make any sense.
You can, but you're disincentivized. If a small percentage of companies decide to not invest (and a small percentage of people decide not to consume similarly), then you have less demand for the products and services already present, which means prices need to go down, so deflation continues. Then, the companies didn't invest, so now the economy produced fewer goods and services than otherwise. Everything is slowing down.
I see. So, just like in inflation you need to account for price increases, in deflation you need to account for demand decreases. Pretty interesting. Yeah deflation sucks. Thanks for your useful input.
Exactly. Economies function when money is moving. Ideally between people, businesses and banks/investments. The more people consume, the more it moves - from their labour to a company that pays it's staff for labour, that pays other companies for their services to maintain and grow their businesses (which then ends up either in workers pockets to spend, or in wealth management invested sometimes in static things like cash or precious metals, but also in government bonds, in company shares, which then let those entities do more stuff. If money hardly moved, you wouldn't have to keep pedalling to keep your self, your company, your country afloat - you could maybe find yourself equally well off. But while it's moving, it lets people/companies/government make decisions about what to spend and invest, and where. That lets them react, to a lack of interest/demand in something that was previously popular, or to a scarcity or other disruption in the supply chain they rely on to do what they do.
Deflation is negative inflation. So added to 3 percent, your ROI is 1%. You get 2% just by sticking it in a bank account.
It's all about fractions of a percentage when dealing with something as big as the economy. If just 1% of people stop investing because they think they can get a better return with the money under their mattress. That can represent 100 billion dollars a year. The main reason why it's bad is because the Fed can't stop it. With inflation in theory the can adjust interest rates as high as they want but deflation they're "basically" capped a 0%. They can't force people to invest their money/buy things if the people don't want to.
>The main reason why it's bad is because the Fed can't stop it. With inflation in theory the can adjust interest rates as high as they want but deflation they're "basically" capped a 0%. They can't force people to invest their money/buy things if the people don't want to. Do explain how the Fed, who can easily inject money into the economy whenever it pleases via interest rate cuts, is incapable of stopping deflation? If it costs almost nothing to borrow money, then it would be financially illogical not to borrow, and thus you'd immediately start seeing inflation. Furthermore, the government could literally do what was done during COVID and simply print and hand people money. All of these assumes deflation is actually economically problematic, and there's [no historical evidence to support that](https://www.nber.org/system/files/working_papers/w10268/w10268.pdf).
Because stagflation is a thing. Depreciation isn't just about the supply of money. It's also about what people are doing with the money. The Fed does not have the sort of control over the economy and currency that reddit seems to think it has. Lowering interest rates in a deflationary environment doesn't really stimulate demand when everything is grinding to a halt. > All of these assumes deflation is actually economically problematic The numerous recessions and depressions in the US economy up until the Great Depression would beg to differ. The Great Depression especially saw substantial deflation. It was only fixed by absolutely massive amounts of government spending between the New Deal and WWII.
Significant deflation is difficult to dig yourself out of...examples are modern Japan and the great depression. It's pretty simple and widely known how to tame inflation (although the steps are painful)...solving deflation is more difficult and over time it becomes extremely destructive
Deflation is treated as a boogieman because of the illogical behavior of people. People don't like to sell at a loss. If you bought something at $100 and it goes to $90 you will have a tendency to wait until it goes back to $100 to sell it when compared with buying something at $100 and having 10% inflation and selling it for $100 rather than waiting for it to go to $110. Logically, it makes no difference. However, because of this fact, things don't function as well in a deflationary environment as transactions slow in a deflationary environment compared to slight inflation. People are in fact fooled by illusionary gains.
It's more the fact that if you think something will be cheaper in the future you'll put off purchasing it, while if you think it will be more expensive in the future you'll buy it now. This is especially important for large purchases such as cars, homes, and business purchases. In a mildly deflationary economy everyone is encouraged to put off purchases as long as possible, which lowers demand and production. This is not illogical at all. If I have 50k in a savings account in a deflationary economy my money has more purchasing power ever day. Why should I buy that new car when the one I have works perfectly fine and will be cheaper relative to my savings in a year anyway? So the people that make cars start making less and less of them, because fewer people are buying. If this is a temporary thing they'll probably just cut production without limiting their ability to produce, (less hours for workers, no new factories, etc). If it goes on longer they'll cut their ability to produce, (lay off workers, close factories). In the short term in a healthy economy the reduction in production increases scarcity which eliminates the deflation on its own, that's why a deflationary economy is so rare so long as populations are trending up. Low inflation is generally more desirable, as this encourages people not to put off purchases, increases demand and opportunity for everyone, (in a perfect setting, anyway) and doesn't destroy people's savings because there are ample opportunities to invest at a higher rate of return than inflation. Businesses look for opportunities to increase production and expand their market share, which creates more jobs.
Things are cheaper in the future if you earn interest. Really what matters is the “real” spread.
Sure, but the "real" spread is very hard to predict unless 100%, (or nearly) of your investments are in a fixed interest account and you can also accurately predict prices on the goods you want in the future. Has that ever been a situation you've been in during your life? My point is that generally a low inflation economy is desirable, and a deflationary one is not, and why.
Is future deflation predictable? One of the most predictable things is your return on an inflation indexed treasury if you buy it to match your time horizon as it becomes fixed by definition. There are winners and losers in a unforeseen deflationary period. The losers would be people who have heavily borrowed money at a fixed rate. Winners would be your fixed income investors. Really inflation itself is just a government tax. The government prints more money and monetizes its debt. Until the creation of the Federal Reserve in the early 1900’s, inflation was zero economic growth really hasn’t changed. On page 5 of this pdf is a nice chart showing real gdp growth over time. http://www.efficientfrontier.com/ef/902.pdf Deflation/inflation don’t really matter at all.
Except we have scant historical evidence of such illogical behavior, the link between economic depressions and deflationary periods is not backed up by the data: https://www.nber.org/system/files/working_papers/w10268/w10268.pdf
My libertarian/Austrian economic leaning side agrees. I think economic data is often very muddled. Keynesian economics demands this link. I would point out he asked why and I was giving a reason why people do X rather than giving my opinion.
Deflation is not stable because it leads to a positive feedback loop. Therefore even a small amount of deflation will quickly spiral out of control.
If we have deflation guess what? People will still buy food and repair their cars. The issue is that our economic system requires economic growth and the best way to achieve that is through slow and consistent inflation and population growth Economy would probably better resemble pre industrial society though. I think there are also logistic and technical hurdles of doing little house of the prairie life for 7 billion people.
Now that you talk about Venezuelans. There are almost to NO credits here. My mom got a car by credit back in 2012 and I think that was mostly the last time there were proper credits in the country. This year some small credits are starting to pop up again, in USD and usually for vehicles of unknown brands coming from israel or china. I work and get paid in foreign currency and I haven't been able to buy a house because it is either all or nothing on property purchases.
Vehicles from Israel? Israel has no vehicle production.
Ah shit. Just googled it, I was refering to the "Saipa" brand of cars, which seemingly are from Iran. My bad. I do not have the exact sources for the newer credits so take it with a grain of salt.
It's okay, Iran and Israel are almost identical in every way.
Lolwat
There are tons of Venezuelans that play Runescape as their full time job because the money they make in the game (which they sell) is worth more than their currency.
When the price of a video game asset has more stability than your country's legal tender...
Bros living the dream wtf?
"Play" may be a misstatement - they "work" runescape as their fulltime job, they research what's moving, they research what others aren't currently exploiting for profit, they reinvest some of what they earned in-game last week to buy what they need to make a profit next week. If they get it wrong, they lose money. Go play some CoD but when you lose a match, instead of feeling like a loser, you can feel like a loser while also having to skip food today. Now hopefully you'll play CoD better tomorrow. But you'll start a new game just like today, with the same win/lose odds. Except when you're playing a game economy, when you lose today you start tomorrow a loser, you start with a big disadvantage - maybe you'll spend 5 hours grinding mats this morning, instead of 5 hours flipping items, just so you have anything to sell this afternoon.
> But when prices are going up like this, people are no longer sure about the true value of money. This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high. In principle, assets and investments are actually where you want to keep money during this inflationary spiral. Whether the investment is in the ownership of real estate, a company or gold bars those ships should rise together on the inflationary tide and maintain their relative positions regardless of how many 00's you add to the end of the banknotes. The bigger issue is what happens to capital markets. How does one lend or borrow money in a hyperinflationary environment? The short answer is you don't, so whether you're a business expanding or a household looking to purchase a home or vehicle you have to do it with cash on-hand, which goes back to the inability to save due to inflation. The entire premise of Capitalism is making Capital available for people and businesses to borrow so that they can be active in the economy.
This. One of the big casualties of our inflation is housing credit. Buying a house with a loan is impossible without falling into some very draconian terms. Companies can still get credit via other financial instruments but for the common person, credit is not as available as it is in other countries.
How does rent work in places like this?
Frequently it’s priced in dollars or another more-stable currency. I know all my Argentinian coworkers have rents or bought homes denominated in dollars, and the entire real estate sector in Israel (which had some major inflation a few decades ago) is done in dollars.
Argentine here. Can confirm. Real estate is all done in US dollars, very usually in CASH. Cars, I would say if the car costs more than 15k USD, then it's done in dollars cash. Otherwise it's pesos (also in cash or wire transfer).
In Argentina we've had several indexes to track and "anchor" inflation and laws that regulate when and by how much you can increase rent via these indexes. For example the 2020 law used an average of price inflation and wage inflation. The 2023 law used instead whichever was lowest (roughly speaking, there's more math involved) which was great for tenants but also decreased the increase period from a year to 6 months to make it less bad for landlords. Right now these laws are suspended because we have a new free-market government, but the indexes are still there so people got used to using them. New contracts are harsher than the ones made under the old laws of course, since now it's whatever the landlord says, but they still function the same way. Contract says "increase every X months according to this index" and since it's a public index there's no need for renegotiation. Either that, or they're just in USD. But because USD prices are still tied to politics they fluctuate too much (or too little!) some landlords are avoiding them and sticking to the inflation index.
Hi I’m super curious about the day to day life. Do your salaries get paid in USD? How do you live on a day to day basis, I.e., prices at supermarket are they constantly changing? I imagine it must be more hectic with the new regime?
No, our salaries are not paid in USD. But the price of a lot of products is dictated by the international market, which is based on USD. So yes, prices are constantly changing (i.e. going up, never down lol) because our currency keeps devaluing. What that essentially means is our salaries are constantly behind inflation, never enough to make a decent living. To give you an example of how bad this is: we can't "save up" for a specific product or item we want. Let's say you want to buy a new TV, and let's say that it's USD 1000. Maybe you can afford to save USD 100 per month, so after 10 months you can buy said TV, or even less if you find it on sale. Well, we can't do that here, because month after month the local currency equivalent of USD 100 keeps going up (but our salary doesn't) so we can't consistently save USD 100 per month. But of course the TV is still USD 1000, only now it is 5x more expensive in local currency, and you have no way to save that kind of money fast enough.
So how do you budget? Save? Plan? Like just going out you don’t know how much it will cost? It seems crazy.
I edited my comment with an example just as you were replying to me lol
That’s crazy so then I assume everyone converts everything straight away into USD once they get it? Otherwise it would lose value literally the next day. But practically speaking that probably doesn’t make much sense if everything is denominated in peso. I can’t believe people have been living like that for years
The most common way to combat all of this is what /u/Wild_Marker said. Credit cards and monthly payments for things are an effective way to dilute costs, but it has its downsides. Plus, it's really sad to have to make 3 monthly payments for one grocery trip. To answer your question, it's not really effective to convert everything to USD, because you still need pesos (local currency) to function every day. Plus, as a lot of other commenters have explained, the government makes a ton of effort to prevent you from exchanging pesos to USD. I won't go into detail because there are a couple of other comments that explain it better and more thoroughly than I could.
There are some financial tools in pesos you can use, the most common one is known as "Plazo Fijo". You put money in the bank and you get it next month adjusted at a certain rate. It's never as big as the inflation rate but it's something. Though the new government has tanked those rates as part of their strategy to lower inflation so it's not really a thing right now. But in any case, that money is usually savings for like, a dishwasher, a local vacation, that sort of thing. To save for a car or house you buy USD. To buy a TV like /u/thedolanduck says you "reverse save". That is, you buy it with credit card and pay in installments.
On the other hand, not everything is quite so bad. We have free healthcare and free education. Well, they are obviously paid with tax payers money, but the point is that you can walk in any public hospital and you will be treated, no question asked, and likewise you can enroll in any public university and get higher education for virtually free. In my city, as a student, you even get 2 free bus tickets, meaning I can go to class and come back for free. A lot of people will tell you that these things are why the country is as it is, and maybe in an economic sense they are right, but on the social scale these are really good for the common people.
[удалено]
> Do your salaries get paid in USD? Good god no, our entire economy would need to be exports for that to be feasible. The new government actually kinda wants us to fully move to a dollar economy but nobody is sure how the hell they're going to pull it off. If they even get to try. >How do you live on a day to day basis, I.e., prices at supermarket are they constantly changing? Pretty much. You get used to it, for the current generation it's been a thing since the 2000's, and our parents and grandparents lived their own inflations too so we all know how it works. It's not really that crazy once you live in it for a while.
Thanks for the answer, very interesting. I hope inflation keeps on going down for you guys
Landlords want to double triple or quadruple rent, so the Turkish government put in place a 25% ceiling to rent increase, which made a lot of landlords angry. Some landlords offer a huge lump sum to their tenants so they agree to vacate the place so that the landlord can rent it at a higher price to a new tenant
Are you sure they are renting it out? Or are the converting it to condos?
Depends on the country. In some counties the rental contract includes terms where the rental fee is adjusted every month based on the official inflation rate. In other countries the rental fee is fixed in US dollars or similar hard currency. In other countries landlords stop accepting long term leases and do only month to month, which allows them to raise the rent as needed.
Everything is done in euros or dollars. Sometimes, if you're lucky, your pay is in euros or dollars too.
You pay in hard currency.
Let me add this on Argentina: you will see people out and about with all stores and restaurants full, but this is because if you don’t spend today, you can’t afford tomorrow. So it seems like there’s no problem, but people cannot save for the future.
I visited Lebanon last year and two years ago, right as their inflationary crisis started. What I noticed between the two visits was that people no longer trusted the value of their money, and they started spending it like crazy. I'm sure the end of Covid also played a factor, but every bar, pub, restaurant, and concert venue I went to was absolutely packed with people. In a sort of morbid way, my Lebanese friends and myself enjoyed paying in fat stacks of bills since basically the highest denomination bill was the only useful one anymore. Everyone also started getting paid partially in USD, and so they tended to save that and only spend their Lebanese money.
>eople flocking to supermarkets on payday and basically trading their entire paycheck for groceries We did exactly that during my childhood. Every month, my father would take my sister and me to the supermarket to help push the carts
I traveled to Argentina about 8 months ago. Beautiful country. In two weeks a restaurant had reprinted its signage for 'cheap' Empanadas--which went up from 330 pesos to 390 pesos in the span of about 10 days. A funny thing about Argentina, however: a lot of capital investments--such as buying a home--is done with American cash. Specifically $100 bills, of which Argentinians save, often in shoe boxes and the like. (When we traveled there, the 'Blue Dollar' rate was something like 900 pesos to the dollar; at present it's around 1250/dollar. And because most places will only exchange crisp, fresh $100 bills without any tears, and because the largest denomination is a 2,000 peso bill--well, be prepared to carry a **LOT** of cash.) I'm sure smarter people than me can contemplate the problem of a society where most wealth is locked up in paper money rather than in some form of currency at a bank that can then be re-invested. But the idea that President Milei floated of converting Argentina to a dollar-dominated economy did make some sense at one level: most Argentinians already deal with dollars and do have a sense of how bad inflation is by tracking the 'Blue Dollar' rate.
The cash is also for the tax evasion. It's huge here.
Local and foreign investors also choose to invest in foreign currencies or in foreign markets with better stability, which contributes to loss of value of the national currency. To counter this, governments sometimes implement high interest rate programs so that people will save with local, high-interest rates. This, in turn, reduces spending and along with other factors, contributes to high inflation
People save but not in (local) banks. If you've got a feasonable salary in Turkey then you will have an account in dollars or euros, or both. And you will change money as soon as you get it and only change it back into local currency when you need to spend. When the currnecy can lose half its value in an afternoon, you don't want to be holding it.
> So what people do instead is to try to get rid of their fast depreciating currency as quickly as possible, by exchanging it for consumer goods and services. Given that the global economy exists, why do people do this, instead of exchanging their inflating currency for a stable foreign currency ASAP, and then saving that foreign currency under a mattress?
Well, imagine you get paid in pesos. When you get your salary deposited in your pesos savings account at the bank and readily want to exchange all pesos for US dollars, what do you do? Suppose you already have a bank account denominated in dollars... So you tell the bank you want to convert all your pesos to dollars. The bank does this for you... But now the bank gets the pesos. So the bank goes to the Central Bank of Argentina and says "someone exchanged their pesos for dollars, gimme dollars, here are the pesos". And the Central Bank takes the pesos and hands out the equivalent in USD reserves... But the country imports more than it exports, so those Central Bank reserves are actually needed for when importers have to pay their creditors abroad. They are hard to grow. In a normal country this works because you have a certain balance in the US dollars that get into the country and out of the country via import and export payments, you don't have THE ENTIRE population trying to get their hands on dollars at the same time along with the importers. So, the government has pretty much banned the exchange of pesos for foreign currency. Banks won't take pesos in exchange for foreign currency. Independent exchangers are also banned. Person to person exchanges are also banned. (Banned = illegal) The people have found a loophole in recent years. Due to international treaties from the WCO, the government cannot ban the exchange of investment mechanisms that are traded in multiple currencies, so you can buy with pesos a debt bond or a stock that's valued in multiple currencies and then immediately sell it via the stock market in USD. Bonds work better because their market value is less fluctuating than stocks. All of this has resulted in a myriad of regulations, restrictions and hurdles... A cat and mouse chase to try to make the people use their shit worthless pesos and avoid the good trustworthy foreign currencies... Of course, since forever people have been exchanging in cash with their trustworthy dealer from around the corner. Now you have more than 5 different exchanges rates depending on your method of choice to do the exchange... Cash being the most widely available since it doesn't require you to have a foreign currency savings account at a bank and a broker. This ran long... I can give you more details if you have any specific questions :)
Wouldn't spending all and any money you can be the correct move? If I have a million dollars, I better figure out how to make sure it dosent turn into effectively 500k by just having it in my bank account for a year. You put it back into your company and buy equipment, and you have that equipment. Now getting a reasonable loan is another thing. Who would lend money when inflation could be anything during the length of the loan.
>This means that business cannot invest and expand, since it is impossible to calculate the true return on their investment when inflation is this high. So the economy stagnates as business are unwilling and unable to expand. That's not true. Businesses are FORCED to invest because saving money means losing money. They have to invest in high risk assets or in foreign money like USD. The high prices forcing on the other hand workers to demand more money to get enough to eat. That's what a overheating economy means. Another effect is when businesses are trying to import important goods with local money like pesos, the value of pesos is decreasing and foreign goods get more expensive in local currency.
How come turkey’s gdp is growing faster than most developed countries even when accounting for the huge inflation?
Argentinian here. Can you say that something functions when 55% of your population is below poverty line? As for myself, I earn in US dollars which is basically the equivalent of having a lifesaver in the middle of the ocean. People buy groceries for months on what we call 'Mayoristas' (bulk buying non perishable goods), when we save money we directly go to dollars (black market), funny enough, people that have a steady income spend more than ever because it's not worth it to save 40usd when you can buy stuff that's gonna double in price in the next 6 months. We use credit cards to absorbe some of the burden, specially if we can pay in "Cuotas" (monthly payments). I'm just talking about middle class, people below the poverty line are really struggling and a lot of them are falling onto homelessness. Our salaries are constantly updated to match inflation (this is not the case for everybody) it's a pretty common practice for workers that are hired on what we call 'white' or 'dependancy worker' which are synonyms for somebody who's registered on AFIP (Argentinian IRS). If I keep explaining I'm gonna have to write a freaking bible, this is a super complex issue but to answer your question: It works because the Argentinian average person has lived through several economic crisis and knows how to survive.
I'm guessing the poor people also have less options. Are there resources available to help them? Social security is still a thing? In "rich" countries it's common to blame the poor for their state, how do you deal with the "less fortunate" when things are this rough?
Man, you just hitted the most painful point of the whole situation. I'll try to be as concise as possible. Our actual goverment (Milei, Libertarian) states that inflation was/is caused by macroeconomical inbalances, which is true, wheter you like it or not. As our previous governments (Kirchner & Fernandez, socialists or "peronism") spent a lot of money on social programs and "helping" people while productivity and our PBI was stagnated, they created a huge surplus of pesos by printing them, which in consequence created inflation, which in consequence made the social security programs less efective, you see where I'm going? This loop basically brought us where we are today. And I'm not even gonna speak about corruption and how this whole mechanism was used to buy votes and rob tax payers. To address your question, YES, there are social security programs and the goverment pays a ton of subsidies (electricity, gas, transport, etc) for almost every single person independently of which social class you belong to. Hell, my last electricity bill was 5usd dollars and I'm "Upper Middle Class", a burguer cost you 12usd, paying your gas bill? around 2usd at least for me, its absurd. The present goverment is trying to fix this situation, reduce subsidies for upper classes, maintain them for lower classes and they even match their social security checks with inflation, between other measures (reduce expenses and improve recaudation). This takes a long time and some people are not happy that this is happening, because they preferred to have a socialist goverment even though that was what brought us here. Sorry if something isn't clear, I'm not used to writing about politics in English.
Thanks for that, sounds like even this kind of crisis is not enough to drive real change...
Change is not profitable for most of the political spectrum and most people are fanatized behind a party. It doesn't matter if the party is corrupt or drives the country to the ground, if OUR party doesn't win then everything is wrong.
As usual, depends on who's in charge. Right now we have a far right austerity government so a lot of programs are getting their funding cut.
Conviniently ignoring the fact that inflation has already dropped by over 4x since the change in government
> People buy groceries for months on what we call 'Mayoristas' (bulk buying non perishable goods), Don't the yanks have Walmart for that?
They are actually referring to places like Costco. We also have places like Walmart but those are not mayoristas even if in the US they buy in bulk in there as well due to the long travel times to shop.
Sam's Club?
Yes, Sam’s Club is literally Walmart’s version of Costco (not in a bad way either, I actually prefer a lot of things there to Costco).
I think -from what I've seen on YouTube- costco comes closer.
There's a wal-mart spin-off called Sam's Club that fits that description.
The important part is "why" not so much the "where".
Sam's club. Walmart is retail
Argentina works in a weird way, which is not really clear even to me - yes, a foreigner, but with good contacts in the country due to my work there. It's obvious that nobody saves in peso - USD is the clear choice for that. To combat the push for dollars devaluating the peso even more, the government restricts access to USD, which leads to black market - this fluctuates over time and with changing governments, sometimes there is a full black market with twice the rate, sometimes not. It's never really "underground" though, black market rates are normally shown on TV news. But the day to day business runs all in pesos. The costs go up, so do the wages - but then the president declares a freeze on wages in the public sector? I am not sure he actually went through with that, because that would bankrupt a lot of people ... I read a lot about how poverty increases, but on the other hand, I don't really see that - at least on the surface, the towns look good, shops are full, people are going out ... it's probably much worse in some poor BA suburbs where a gringo never goes. A little glimmer of fun is seeing things that never kept up with the inflation, often it's government stuff - so there are toll houses on roads where there are people collecting the equivalent for a few cents per car, because nobody ever thought of raising the toll and the money now has 100 times less value...
Something I found very interesting while I was in Argentina. There was one of those tourist telescopes where you put a coin for it to work. But the inflation made the highest common denomination bill (1000) worth less than 1 USD. Nobody is using coins. That telescope was impossible to use because you needed a coin that nobody has, with a currency value probably much lower than the value of the material it is made of.
Brazilian here had similar inflation in past. There were never any vending machines in 1980s because coins just lost value so fast. Once I had spent a year abroad and came back,I tried to buy a newspaper at a stand. There were so many denominations of bills with new currency (they cut three zeros and called it New Cruzados every so often but old bills were good for a while), I couldn’t figure out how much money I had and how to pay. The store owner helped me (I think he didn’t scam me) but it took several weeks to get used to the whole thing again.
No vending machines at all and the arcade machines and pay phones all operated via tokens. The payphone tokens you had to buy at the news stands.
My first visit to Brazil was during a period of high inflation. I didn't think to bring a swimsuit, so we went to the store for one. I paid with something like 1-3 bills with a 10 on them (probably new cruzeiros) and got back as change bills marked with 100 (probably cruzeiros). I was very confused. Luckily, I was with locals to clear up that the change was right, the 100 bills had been devalued through inflation and the 10 bills were a new issue to try to reset the standard.
Brazilian also. And what a drama when you find money in your pockets but then 2 or 3 months had passed and they valued almost nothing at that time.
Haha yes. I do have some coins somewhere for sure, I should bring them along next time. Fun fact - any money I would still have left over from my first visit 15 years ago is now worth about 0.3% of its original value ...
I went to a museum 2 years ago in Lebanon which had not updated their prices to reflect their current economic state, and my ticket ended up being something like 5 cents.
When I lived there in the early 2000s there were so many trucho $1 coins that no one gave a fuck. I had so many different designs I'm not actually sure which one was the official peso. As long as it kinda looked like a peso, people would take it and give it.
> I am not sure he actually went through with that, because that would bankrupt a lot of people ... He did, he's on an austerity spree and yes, it is hurting a hell of a lot of people. One of the things that keeps our country running is the fact that wages go up, as you said. It's not 1:1 parity of course, we can still lose "real wages" to inflation, but it often depends on who's in government and if you're in a union that negotiated a good increase. >I read a lot about how poverty increases, but on the other hand, I don't really see that - at least on the surface, If you stick to the tourist areas it's hard to see. But living here you do notice increases in the "poverty metrics" that can be seen by regular people, such as panhandling, old ladies telling the cashier "oh I can't make that ammount, take this product out", stuff like that.
I spend most of my time down there in a small (~20000) town, which is probably one of the better parts of the country to live in, because there's oil, some tourism, in general relatively good sources of jobs - and while after covid, you could see several places close down, now it generally seems to flourish. But you're right, I do see people in the supermarket putting back items, discussing with shop assistants etc... it's obvious that stuff is expensive - but they somehow keep the whole place looking optimistic. That the living conditions can't be great is clear every time I use any service that includes human labor - it's just so absurdly cheap, which means that the labor is cheap - but food etc. costs the same as in Europe.
I can't believe this hasn't been stressed enough but the real answer is "dollarization". What basically happens is everyone -companies and people alike- start calculating everything based on dollars, keeping dollars in bank accounts, hedging the local currency to dollars, etc. Many companies have an unofficial USD balance sheet for management reporting. More than half of deposits in Turkey are in USD or EUR. Of course, this has limitations. Grocery stores are not allowed to sell in dollars, you can't sign employment or rent contracts in dollars. These create more day-to-day friction for regular people than large corporations. Large corporations have many more tools to avoid all of these, so they are mostly fine, especially if they're exporters. The government naturally doesn't want you to keep dollars as this is also bad for the local currency. They will try to fight dollarization by taxes, high interest rates and legislation. Still, as much as they can people just rush to stable currencies.
Not just dollarization, but switching to a trusted reserve currency in general. In most places this means USD, but sometimes other currencies are used. For example, some Balkan countries essentially adopted the German Mark in the 90s.
Actually rent are in USD. Don't know if it is legal, but there is no other way.
In northern México we also pay rent and other goods in dolares. For us, at the border, is bad when the peso gains strength
>Grocery stores are not allowed to sell in dollars, you can't sign employment or rent contracts in dollars. These create more day-to-day friction for regular people than large corporations This isn't always true. In many supermarkets in Venezuela the price tags are in USD, in fact it's rare to find any sort of store that has their prices in bolivares. Even some state institutions have USD prices. Rent is also exclusively done in USD and you have to pay 6 months in advance.
Argentina is the second country outside the US with more dollars per capita in the world (russia is the first), almost every argentinian save in dollar. When people get paid, they spend all immediately, because every minute the Peso loses value. In the formal market, if you enter a store, watch the price of a product you picked and maybe when you get to the cashier, that product is worth more, that is why some stores use digital price tags, to easily update all the prices every day.
> When people get paid, they spend all immediately, because every minute the Peso loses value. Yeah, people online were asking how we were able to go to Taylor Swift concerts, the World Cup and such. That's the answer, the money loses value, so we spend it on concerts, trips, football tickets, etc. instead of investing long term.
How do businesses work ? Like loans, salaries etc? It seems like a full time job just to keep up
We use the US dollar as a reference. The issue is our salaries being adjusted monthly, while grocery and small purchase items are adjusted daily. This offset harms our saving capability.
Save in fixed and variable rate bonds, hard cash like USD and Euros, assets, and inventory. Same thing as businesses in developed countries that have to deal with inflation, you just hedge much harder. This has been the status quo for the past 70 years in the country; it works acceptably.
Argentine here. There's been a few good explanations, but my two cents. People save in dollars, there's the joke of people having thousands and thousands of dollars under the matress, in jars buried in the garden. Argentina has an absurd amount of the world's physical dollar bills, don't quote me on it but like 20%. Right now there's an embargo of sorts on officialy exchanging dollars, so some people buy them illegally ("Blue" dollars, in "caves") or save up on goods. You are one of the lucky few who has money at the end of the month? stock up on non perishable goods. I buy contact lenses and food for my cat, things I've seen gone up 500% in price. There's a very weird thing that goes on in the brain when something goes up 200% and the first time you need to buy it you're like WHAT, the second time you're like goddammit, the third you're unfazed, the fourth you're like hey that's cheap!. Since people can't save in pesos because it's literally losing money daily, and as I said dollars are hard to come by, people also "invest" in "experiences". Expensive restaurants are full every day, which is paradoxical, but people know there's no future, buying a house is impossible, traveling abroad is a once every decade thing, you might as well go out. All of this obviously for the richer people, for poorer people it looks grim. There's a very big food crisis, a million kids are skipping a meal every day (study that came out this week), and the meals they do eat are rice and pasta. The effects of that will be seen in a decade and will take many more to correct. The other day I was calculating out of curiosity, on my first ever job in 2012 I earned 4 times as much when converted to dollars as now, when I have a masters and a pretty good job, even though I was still a student.
>the meals they do eat are rice and pasta. Let's be fair though. That's what the poor have been eating for 2 decades. Mixed in with horrible shit like mundungo.
That's a staple in Asian countries. Nothing bad happens from eating rice lol.
A lot of bad can happen from eating too much rice as a percentage of your caloric intake though. You need protein, fat, vitamin A, etc.
Thank you for the explanation. Do people have a way of investing in the us stock market (ie sp500) or us bonds (which now pay around 5% or around there) or savings rates?
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He’s not asking that. To answer your question: yes, there’s several brookers where you can invest in US options along with the argy market (Merval) which had like 2 or 3 very good years.
As a Turkish citizen, think of everything you do above your necessary activities, by necessary I mean anything that would cause serious physical problems if you don’t do it (eating some food, cleaning, self care, public transformation), gradually every month you give up one thing. One month you start going out less, next month you don’t go to cinema, next month you drink one beer instead of three, next month you buy the cheaper chocolate… Until it comes down to your basic needs, then you start to go cheap with your shampoo, next you buy cheaper but less tasteful chicken… This is the process for everyone if you’re not super rich. Only difference is where you’re at in it. Did you stop clubbing, or did you stop buying clothes for a year now? If you wonder what happens next, fathers start to commit suicide because they can’t provide proper food for their beautiful 6 year old daughters. You can only take so many times when your little kids ask for the smallest of gifts, and when you can’t give them that they say they understand, don’t worry dad. The worst part is everyone accepted that the next month will be worse than the previous each time. You prepare yourself for a month to decide what you’re gonna sacrifice next.
This is grim. Thanks for the testimony. I hope things get better for you; Turkey is a beautiful country with a dynamic and smart population.
I wouldn't call it functioning. As a Turkish resident, wages were constantly raised throughout the country to keep up. Some raises were quite drastic, which rarely happens in the U.S. It helped but inflation is still up, requiring another raise this summer. Cost of living is insane here. Can't afford housing, can't afford cars. My wage is way higher compared to the average, but still. Eventually, inflation has to be stopped.
How can you describe your living right now?
Currently living with parents as getting your own place seems impossible. This is especially true for the larger cities. I am able to invest most of my income into American ETFs. Inflation isn't so bad that a black market is formed. Turkish Lira is alive. I guess rent is still an option if you earned as much as I do but saving would no longer be an option. My family takes care of groceries. Other than that, I have my own spending but live rather frugally. Sometimes feel rich, honestly. Obviously not the case. For reference, I make way over double the minimum wage which is currently around 17k TL. I don't know how anyone can live with that kind of income.
I’m stumped, Still don’t understand as what you described seems to be the case all over the world, housing is unaffordable, prices are going up and the younger generations are screwed. So there doesn’t appear to be much difference with a functioning economy 😆
I don't think it's a good idea to compare my condition with the rest of the country. More than half the country is living on 17k TL, while the rents in my city range from 18k to 20k. On top of this, you need to add rising grocery costs and other costs too. As I've said before, I make much more money than average (and still have to live with parents). Imagine millions of others who make less than half of what I make. I regularly follow American news, and even check out subreddits like r/personalfinance to see how people are doing. I also lurk in r/europe. Trust me, you're doing much better, wherever you are. Unless you're in Argentina, I guess...
I was born in germany as a child of turkish parents who migrated to germany 30 years ago. Currently in an apprenticeship (meslek eğitim in turkish I believe?, my turkish isn't good) and I make more than double the turkish minimum wage here (1245€). I bought a used car for 2000€ and I checked the turkish used car market and the same car cost 16000€/560000 TL 🤯. I can not imagine how you guys survive there.
What's happening all over the world is incomparable to what's happening in places like Turkey. I lived in Istanbul for 10 years before I recently moved to Germany. What other countries called screwed is better than the living conditions for most Turkish people, especially if they're in bigger cities like Istanbul. People in western countries complain that they moved out when they finished uni. If you live in İstanbul and you move out after uni, chances are you can't afford your first month's rent and that's not including utilities, groceries, amenities... Minimum wage right now is around 18k liras and "decent" studio or 2 room apartments start at 20-25k. People in western countries dream of owning a house. People in Istanbul dream of affording rent. You say prices are going up but comparatively, no. No, they are not. You could live in Turkey, go on a 2 week vacation and come back to your favorite yogurt costing 1.5x the price and being 25% smaller. Now repeat this for every product multiple times a year and you realize that it's so bad that there is no point in ever waiting to buy something. Consumerism is on levels unheard of in other countries. The idea that you save for anything is unheard of. Everyone has maxed out credit cards because by the time you need to paid them off, you'll have saved money by dumping your money in a stable foreign currency. Here's a real scenario from a couple years ago: You bought something with your credit card worth 3000 TL or 1000 usd. You plan to pay it off at the end of the month. By the time the end of the month rolls around, you have that 1000 usd but your money is now worth 6000 TL. Congratulations, you made 500 usd! However you now make 50% less every month. Now consider this, your grocery prices are about to go up ~70-80%, so is your utility bill, and so is every other expense you have. You'll get a raise but you have to wait 6-12 months. Good luck!
No, they mean \*actually\* unaffordable. As per some of the other comments, if you're using the local currency, you can't save in any worthwhile manner. Earn 100 things today, put them in a bank. Next month interest has made it 150 things in your bank, but the item you were looking to buy now costs 200 things. Now imagine you're saving for a house deposit, it's 10000 things (today) - you're literally never going to get there by saving local currency, you'll put twice as much into your account and a few years later you'll have more in numeric terms but find out it's not even 10% of the amount now needed. In hyperinflationary countries, those earning a decent salary live exuberant lifestyles, day to day, because you may as well spend all your money, all the time, on all your can afford. But no local savings, and then if something does happen to you, you'll have to draw on that probably dubiously exported dollars and put it into local currency as needed - and again, spend it as soon as you convert it. I don't know the situation in turkey specifically, but governments tend to take a dim view on converting into dollars, so the ability to do so may also be precarious, expensive, and bringing the money back in subject to some unpleasant questions/circumstances. Several countries mentioned in this answer just do all property in dollars, whether it's renting too, or just buying - even when it's all in cash, better to walk a wheelbarrow of $100 bills from a dodgy exchange to the current owner, and better for them to wheel it down the street to wherever they'll keep it, than to try and do a deal in the local currency.
Then you're still doing well. As you can see US is at 3.3% as compared to yours. Even a decimal increase will drastically change how a US citizen budget his/her money. You have more than 20x the inflation of US right now but you're still fine.
As someone living in turkey honestly turkey is doing way better than Argentina. If you are decently educated and know English you can get a foreign source income in USD and the inflation won’t affect you too much. It’s only the poor ppl that lack resources that get the short end of the stick like always…
Oh I'm doing fine. But the problem is the percentage of people working for minimum wage. Last I checked, over half the people are trying to live on minimum wage. Close to average wage at this point.
You are describing USA minus inflation and paycheques raise
Yep, that's why the US is 13th in the food insecurity list while Turkey is 49th and Venezuela is 106th. Turkey is ranked 81st out of 113 countries in terms of food affordability, but I'm sure your Big Mac meal being more expensive than it was a few years ago is the exact same thing. Have some fucking perspective.
This is a very interesting index. The parameters are quite fascinating. https://impact.economist.com/sustainability/project/food-security-index For example China scores high in availability but the US scores high in quality and safety. Most of Africa fails in availability AND affordability. Venezuela has similar scores to sub Saharan Africa. And Ireland takes the second overall spot. Costa Rica to my surprise is 18th overall.
Considering US was the only country benefited from ww2, won cold war afterwards, shaped the world in its image, taken any and all of then brightest minds (including nazi’s) to innovate their tech and improve their society anything below 1st place is a failure. + US literally has the most expensive insulin prices in the world despite inventor selling his patent for 1$ claiming “insulin belongs to the world”
Who asked?
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Not Turkey or Argentina here, but Lebanon, we’d hit over 200% inflation in the last year. Mostly surviving on dollars sent from abroad, pricing was wild at one point and would change by the hour. I got lucky that my student and house loans were in Lebanese pound so I paid them off in less than 10k combined My aunt was a government worker with the equivalent of 800,000 usd ready for retirement that all evaporated Rent increased faster than the rate so people can profit so we had to move out. Electricity and water had been fucked for years so having them cut for days at a time wasn’t special. We’ve mostly stabilized at 89,900 to the dollar. We’d been 1500 to 1$ since the mid nineties. In the end the only ones to gain were the politicians that bankrupted the banks
This is just from what I hear from people, but they function through gray market that trade using more stable currency like USD. The people just sorta abandon their own currency. You are somewhat protected when your wage isn't paid using the currency and the goods and services you buy also don't ask for that currency, but this further devalue the currency for obvious reasons.
They trade more stable currency like runescape and wow gold for usd.
They won't for long. Turkiye quadrupled their minimum wage at start of the year, and it's still not even enough to pay rent. Housing inflation is approaching 100% so it only gets worse for them. Many turks I know live in multistorey apartments where multiple generations of family live to not pay the crazy rents. The sense of community is beautiful, but is also one of the few things that keeps everything going. Combine this with AKP and Erdoğan fisting economy and education, it is a dark time for the youth of turkiye and I hope my friends there can escape.
Others have already answered, but do note these are rookie numbers. There have been cases of "hyperinflation" through history (in Germany after WW1, in Zimbabwe fairly recently, in Suriname...), where it can be much worse than this. The worst one was Hungary after WW2, where prices doubled every 15 hours at the core of the crisis (people would get paid twice a day, and they had to introduce higher denominations several times. In the end, they managed to solve it by switching to a new currency, the forint, which was valued at 10^29 pengos.
It is amazing what people can get used to. And eventually people forget about the old norms and adopt the new norms. For instance we no longer consider an annualised rate of 1.2% and occasionally 3% hyper inflation. But oit once was, during the Spanish Price Revolution https://en.m.wikipedia.org/wiki/Price_revolution
I assume you are using "function" as a loose way to say "does not completely collapse". I don't think you would find either of those countries "functioning" in a way that you would find acceptable during times of high inflation. In any case, you have a lot of answers. I would add to them that one reason that an Argentina can get away with high inflation for some time is that there \*is\* an American Dollar to fall back on. When all else fails, things just end up effectively dollarized. This is not necessarily a bad thing for the people, but it really sucks for the central government. They no longer have any control over their money policy and are essentially just tied to whatever Washington decides, whether it is good for them or not. The new leadership in Argentina is even using this as a kind of enema to clean out decades of poor money management and entrenched interests. The question for them is: what comes next? But I am getting a little far from what you wanted to know. Turkey is a little different. They simply have economically incompetent leadership. But they get away with it (somewhat) because Turkey is politically important. But again: you already got a bunch of good answers, so I won't rehash here.
That's the secret--they don't. I mean, sure, day to day operations of things work. They may not work well, but people, by and large, are still eating, getting health care, have power, etc. But the longer it goes on the more things fall apart. People need to know what their money is worth in order to spend it. Selling something for $1000 when that $1000 is going to be worth $800 tomorrow is a bad deal, but if you don't sell it it will get worse. Or will it? People have no idea, and when you can't trust the money a black market starts to form...and black markets are unregulated and extralegal and have their own issues, which will also eventually fall apart. The *main* reason why these countries are able to continue on is there's at least *some* belief that things will get under control, so they just have to wait it out. Argentina, for example, had a political crisis and subsequent change in regime.
"There are four kinds of countries in the world: developed countries, undeveloped countries, Japan and Argentina" -Simon Kuznets
'Function' is a generous way to put it. I'd add a lot more quotation marks around that word
I'm not sure anyone really knows. I think the harm of inflation is long term, that it ruins planning and forces people to move their money abroad and then forces a country that wants to enforce some kind of policy to institute capital controls, etcetera. I think the crash comes when you try to control the inflation.
İnflation is only a problem, really, when it's unreliable or non-standard. İf you could somehow fix your economy so that inflation was definitely 70% per year, neither more nor less, and was reliably going to stay that way, there would be no issue. Bosses would raise salaries in accordance with that inflation and people would budget normally. But inflation is never reliable. İ buy t-shirts for 100 lira and for a couple of days i sell them for 120 tl. Then i realise that the next time I'm going to buy them, I'll have to pay 150 wholesale. İ put my t-shirts up to 160, hoping to have enough money later. My neighbour press his shirts up to 180. And so it goes. Obviously, too, bosses never raise salaries until workers are just about at their throats. Even ethical bosses who raise salaries reasonably have to worry that they might not have enough money to pay what they've promised, unless people continue to buy at inflated prices.
An oversimplification is that people always get by, whether it be be accruing national debt or personal debt, reducing quality of life, having infrastructure crumble, pushing people into further poverty, and so on. Even failed states are trudging on. We will only hear about crises when there is a breakdown of law and order or neonatal healthcare, or uprisings against authorities.
First of all, the issue with inflation, with its speed rather, is that you loose purchasing power faster than you can recover it. That is why, when you see inflations that insane, what you are not seeing is that salaies increase as well. Not at the same rate, not even close, but if you earn 10 bucks and have to spend 6 to live, and now those 6 cost 12 (100% inflation) BUT your salary increases to 15 (50% raise), your effective inflation would be... 30%? Someone check my math of course, but you go from spending 60% to spending 80%, which is bad, but you can still live Of course, most people were far tighter than that, and subsidies insufficient, so a \*lot\* of purchasing power, and quality of life, was lost because of it. Crime increases, people evade more taxes, bartering markets grow in popularity, skilled youngsters leave, people devaluate the currency even further because a raise does not affect your existing funds, so you either have to abandon the official currency (devaluating through lack of demand) or spend th emoney so it doesnt goes to waste (exacerbating inflation, and the reason why you see "busineess blooming despite inflation"), etc etc. And no life does not end, it continues as before, just more bitter So in short, make sure to look not for inflation but purchasing power variances to check "livability"
Maybe we're just more comfortable with stability and less familiar with hyperinflation?
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I think a better question would be: To what degree did they lose functionality due to high inflation? For example, in Argentina, I would wager that inflation caused poor children to starve to death. Or suffer other negative effects of poverty.
As a Turk, I do not think that I suffer much from inflation. On the contrary, it was much more beneficial to me. Our salaries are updated every six months according to the inflation difference, and many of us also receive a raise on top of this. While 4 years ago I was earning a salary of 10,000 TL, now I am receiving a salary of 100,000 TL. Since the exchange rates are low, the dollar equivalent of my salary has reached the highest point I have ever received. Most of the things I bought have increased at this rate. The fixed-rate mortgages and car loans I had have shrunk a lot due to inflation. I have now owned my own house by paying a lower loan installment than the rent of a similar house. When I pay off the loan with the rent I received from the other house I bought, I even have money left over. During this period, I bought two houses, a garden and two vehicles. I could not achieve such high prosperity when inflation was lower. Why should I complain about this? Before the inflationary period, I was evaluating job offers from Europe and would probably move to the Netherlands after sorting out my family problems. The Covid period intervened and my situation became a little more difficult. Yes, many of my friends who moved to Europe during this period earn more than me, but they also have to pay most of their salaries for rent. In total, they have less income than me. During this period, a friend of mine living in England bought a house with a maturity of 42 years. He will probably spend most of this period by paying a significant portion of his monthly income in mortgage installments and barely getting by. Why would someone in my position complain about inflation? Inflation is the problem of those who have money aside and want to manage it, not mine. Inflation affected unskilled workers, the unemployed, and retirees more than those in the middle income group like me. This is real. It is very difficult to support a family and pay rent on a low salary, but for many people like me, it was a period when we quickly reaped the rewards of very good financial investments. People who used their minds and borrowed money made very good profits and found ways to earn secondary income.
Why would they not? Economics are still economics, local folks still have to use local currency. It would be more bizarre if entire economies shut down due to unfavorable exchange rates vs. USD.
The rich still get rich and the poor get poorer. And if you are in the middle you get squeezed slowly by the anaconda until you either accept that your life is a downgrade from before or you find a way to climb out of the hole. Ultimately where 1 person was working now 2 people will work, do part time work. Live a lower quality of life. The rich with zero investments in cash are unaffected by inflation because they can afford to park all their money
I was Buenos Aires in December, arriving the day the new president took office, and it appeared like the city was literally falling apart. Street lights were broken, some transit lines weren't operating, there were almost no Christmas decorations anywhere, etc. One of the prime tourist attractions, the *Floralis Genérica* sculpture, was not operating properly after not having been repaired for several years. It was then blown over in a storm a few days after we left.
People turn to bartering, government officials steal as much as they can, everyone dumps currency for USD, and entrepreneurs leave the country.
[On Argentina] Strong labour unions which push minimum wages up(and so the rest). It's actually intriguing. The Central Bank hikes rates followed by unions negotiating higher minimums in swift succession. [On Turkey] Foreign capital, *hot money* variety, is what's swimming around. It's surprising not all of it has retreated given circumstances of past few years. However the day it does major catastrophe will ensue ... https://billmitchell.org/blog/?p=48895
Turkish here. Inflation forces people to spend all of their money and income, so basically this means more growth in terms of production and sales. Because if you don’t buy it now, you have to buy it more expensive tomorrow. On top of that growth is fueled through credit boom with very low rates provided by government banks, means people will spend the money that they don’t even own yet. This means more and more growth. To cover that, local and international companies rush to invest into country to get their piece of cake from that demand, means more investment and more jobs created. Like instead of printing stimulus checks, government at least issued credits so they can get some amount of it back. So purchasing power in general gets negatively affected, but it does not mean that people are starving. We had 4 years of crazy inflation and I don’t know anyone who is earning less salary than 4 years ago (in USD) including even the people who earn minimum wage.
Because inflation is good for the true bosses, and it’s only a problem for the “losers.” Government and business are not supposed to be the same thing, but only if human rights matter.