I don’t know how many different ways I can write this. Reserves are not insurance against monetary reversal, they are the calamity. If you have them, that only means you have a problem. And if you have a lot of them, well.
The Financial Times yesterday writes again about Argentina. No matter what’s thrown at that country, nothing will staunch the monetary bleeding. The following is a good enough summation for 2018:
Argentina may have reluctantly fallen back into the embrace of the International Monetary Fund, but the biggest aid package in history has not managed to inoculate the country from an onslaught of market pain.
But why? The global economy is booming, or at least on the verge of one. That’s what everyone says. “They” made it their entire point to add “synchronized” to the narrative for a reason. This one unlike the other false dawns wasn’t going to leave anyone behind.
Except maybe Argentina. And Brazil. Turkey. Indonesia. India even. And then China. As I wrote yesterday, “If things are going so well, why aren’t they going so well?”
The process of recognizing an “L” isn’t straightforward. Nobody believes in them, not at first. We are all taught that recessions are temporary and that when they end growth simply resumes as a matter of science. That’s what everyone keeps expecting after each downturn, no matter how severe.
In fact, the worse the contraction the greater you think the recovery will have to be. The world is conditioned to expect just that sort of symmetry. Economic history, at least in the postwar era, is conclusive on that score. What goes down must come back up.
One reason for the pervasiveness of the belief is modern Economics. We are taught that Economists have it all figured out. They learned from the big mistakes of the past so that they would never be repeated. The global monetary disruptions that were almost always the cause of worldwide hardship just don’t happen anymore.
