Daily Archives: September 28, 2012

Flash Point: Trade Wars in Real Time

Knowing somewhat of Argentia’s past, we began a post: Placing Argentina on Deathwatch. Because news was slow we discontinued updating it. We still believe Argentina will default again. However, we are more interested in what is emerging as a trade war. Protectionist polices are being openly challenged, today by Mexico as Stratfor (Mexico Launches Dispute Before World Trade Organization) citing Reuters wrote:

Mexico launched a dispute before the World Trade Organization against Argentina, Reuters reported Aug. 27. The European Union, United States and Japan have made similar complaints against Argentina. Each complaint focuses on Argentina’s import licensing, which is said to be one of several protectionist policies that Argentine President Cristina Fernandez de Kirchner’s government has adopted.

On August 21, the US, Japan and the EU launnched a WTO action against Argentina as reported by Reuters: UPDATE 2-US, Japan follow EU, slam Argentine “protectionism” at WTO.  According to Reuters:

Notification of the two new complaints comes a day after Argentina hit the EU with a separate WTO complaint, alleging discriminatory treatment by Spain against Argentine shipments of biodiesel. These bring the number of trade disputes launched at the WTO so far this year to 18, already more than double the eight that were filed last year.

Argentina has 60 days to settle dispute or face adjudication at WTO.

This follows the May nationalization of the Spanish oil company Repsol subsidiary, YPF: Argentina nationalizes oil company YPF.

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Flash Point: The Other Side of the Coin

So often in economic commentary, the pundit focuses on an aspect of an issue, apparently totally oblivious to the fact that he is looking at one side of a coin. As an example, many doomsayers like to propose the idea that the China can somehow sell its Treasuries and destroy the US. The fact is if they sell, someone else has to buy. The Treasuries are still owned by someone. Is the Treasury threatened? Probably not. Do they care who the owner is? Probably not.

Perhaps one of the most common economic coins is the bond. This coin is not misunderstood. Heads the yield goes up, tails the price goes down. But today we started entertaining another one. We hear constantly that money printing is inflationary and we agree with this idea. But the other side of the coin is that the value of the money deflates proportionately. Since almost all debt can be considered to be money with a non-zero maturity, the value of all debt deflates.

We suppose the issue is not so much that every action has an equal and opposite reaction – certainly a bilateral event – but that every action has that which is acted upon. All events are bilateral. When you argue a point, what is the bilateral consequent?

Remember: every coin has two sides.

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