Take physic, pomp

Pushing-on-a-string update (a semi-random rant…nothing new there)

Both Peru and Chile took pretty sharp monetary action last night, as both countries dropped their benchmark interest rates to try and stimulate the local economies. Chile trimmed 0.25% to get down to 0.5% (QE anyone?) and Peru took a full percentage point away to drop from 3% to 2% (both links to relevant Bloomie articles).

Both moves are theoretically correct, of course. With basically zero inflation in the pipeline and recent inflation figures flat-to-negative, there’s no worries about cheap money suddenly stoking prices. In fact getting cheap money circulating is exactly what they want and so Chile/Peru are trying to show a leg to business and get them to spend, thus rasing money velocity.

So for those of you who think the dollar is about to die some kind of death as a reserve currency, yet again I invite you down to this nmeck of the woods (we have a spare room) and offer the chance to experience some RealEconomik. All the Fed has done by getting down to its 0% benchmark level is to have beaten all other world currencies in getting there. Chile at 0.5% is, for intents and purposes, the same. And it’s not one a developed nation, as much as the mad Oppenheimer might want you to believe. Peru is cutting like crazy to get things moving, but so far to no avail (when less than half a nation’s economy runs through the formal banking system, it’s makes that string even moe difficult to push upon using ‘correct’ economic theory). And the guy on the street, getting no interest rate love for his local currency, watching them devalue against the dollar and having to pay off his car loan or mortgage in dollars? Have a guess what currency he’ll want to carry in his wallet?

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