Continuing from my earlier post on overheating emerging economies.

Argentina in Focus

Argentina has an extreme case of 24% inflation and negative 11% real rates. The actual rate of inflation for Argentina itself is under much dispute. The official government rate is 8.5%, yet private research has shown it to be as high as 25%.

Currency Spiral

This month, the Argentine government has started restricting the currency market within Argentina, likely in an attempt to slow the deflation of the Argentine Peso which as fallen over 30% against the greenback since 2007 and over 40% against the Real of Brazil, it’s biggest trading partner.

According to The Economist, this policy will likely see the emergence of a black market for foreign exchange as the people clammer to exchange their rapidly depreciating currency for the relatively solid USD.

Gaping Negative Real Rates

A real interest rate at negative 10% points to an expansionary monetary policy in an effort to boost up the economy that may be pushing the country too hard. GDP y/y came in high in 2011 but many analysts view a large slowing soon, a reason being “scarce access to credit”, likely because negative real rates discourage savings.

Government Policies

Inconsistant government policy is a reason Fitch and Moody’s rate Argentina’s currency and economy as “B”. So keeping an eye on government policy will be key to seeing how this one plays out.

External Blog post from Seeking Alpha

http://www.roubini.com/critical-issues/49388.php

http://www.oanda.com/currency/historical-rates/