OK, let's review the rules again, which, by the way, as I understand it are immutable. As I understand it, this isn't like Karl Marx and Adam Smith arguing about what's best. It's not a matter of preference. I can't follow the math but you could if you wanted to.
You can have any two of the following three, but not all three:
1. Freedom to manage your economy to suit political pressure.
2. Freedom for capital to move in and out without restriction.
3. Control over the exchange rate.
Argentina pegged their exchange rate to the dollar, so they already picked number three. That means they could have either number one, or number two, but not both.
But, they tried to have all three, anyway, because who cares about a bunch of economists, what do they know?
OK, so currency speculators knew that what Argentina was attempting to do was impossible. So they bet that Argentina was going to devalue, and made it a self-fulfilling prophecy. |
