Thursday, April 18, 2024

OPINION AND ANALYSIS | 14-05-2022 00:01

Fear, uncertainty, doubt

A paradigm shift for Argentina, global geopolitics, and cryptocurrencies.

Several of the truths that have reigned since the beginning of the 21st century seem to be crumbling around us. Within the Argentine political realm we appear to be witnessing the last-ditch efforts by Cristina Fernández de Kirchner and her followers to remain in power, while most of the political class is migrating to more moderate positions. This has serious repercussions for Mauricio Macri’s political future as well. On the global stage it feels as if Vladimir Putin’s Russia is accelerating its demise, but a new world balance between a West led by a weaker United States will apparently confront China. This geopolitical reorganisation occurs as our current brand of financialised capitalism is beginning to run out of steam, with inflation spiking across the globe and an era of monetary stimulus and record low rates coming to an end. Cryptocurrencies, hailed as a potential replacement to centralised and abusive financial institutions, suffered a critical blow as a stablecoin lost its peg to the dollar, putting the whole ecosystem at risk of a “Lehman Brothers moment.” Things are in flux.

The global change in macroeconomic conditions promises to be one of the great organising factors of this new world. Since the fall of the Soviet Union the United States and Western Europe had come to become hegemonic geopolitical players that imposed a certain model for societal organisation based on financialised capitalism and democracy. China, the growing contender, adopted the capitalist ways while maintaining a centralised control of its political system. This democratic model has been in crisis for a few years now, begetting powerful anti-system leaders like Donald Trump and Jair Bolsonaro who earn their support directly from the people, sidestepping traditional political parties as populations don’t feel represented by them any more. In part, a large portion of society has been excluded from the tremendous increase in wealth generated by the system, leading to greater inequality as the return on capital is greater than the return on labour, to paraphrase French economist Thomas Piketty. Easy money from the US Federal Reserve and the European Central Bank kept the machine going after the Great Recession of 2008, yet the combination of the global Covid-19 pandemic and Russia’s invasion of Ukraine finally popped the lid of inflation, forcing Fed Chairman Jerome Powell to try and dismantle the policy scaffolding built by Ben Bernanke.

The Fed, then, is shrinking its balance sheet and raising interest rates in a global scenario of fear, uncertainty, and doubt (FUD). Global stock markets are off their all-time highs — which at many times they achieved when the economy wasn’t even in great shape — while commodity prices have soared. The war in Ukraine has made Europe’s dependence on Russian natural gas evident, while the interconnectedness of global commodity markets has been rattled, pushing the United Nations FAO Food Price index to record highs.

Interestingly, even the cryptocurrency market was caught flat-footed by these changing winds, causing a massive run. While Bitcoin is the most well-known cryptocurrency, several other different types of coins have become important parts of the ecosystem, particularly stablecoins. These tend to avoid the volatility typically associated with crypto markets by having some sort of peg to a traditional asset, in the most important cases it’s the US dollar. They are used in many cases to facilitate the store of value in between trades and other transactions. While the largest such stablecoin, Tether (or USTDT) is backed by “real assets” denominated in fiat currency, Terra’s UST stablecoin used an algorithmic system to maintain its value pegged to the dollar. As global tremors sparked a generalised “risk off” move that included cryptos, UST failed to keep its peg after its system was apparently targeted by one very large operation that sparked a cascading drop in prices that extended from the Terra ecosystem to the entire cryptocurrency market. Some US$1 trillion in value has been wiped out in the past month alone.

There seems to be no safe place to hide these days. The global system is showing high levels of fragility that suggest our capacity to commensurate risk is probably failing. Uncertainty is the name of the game today. It is beginning to feel as if we have once again entered a crisis as explained by Thomas Kuhn in The Structure of Scientific Revolutions. The philosopher coined the term”paradigm shift” to explain how an anomaly can create a crisis for established (and dogmatic) theories, throwing reality into disarray as “experts” are unable to explain phenomena until a new paradigm is established. This creates a total reorganisation of knowledge and generates the conditions for a future revolution.

In Argentina, we are living through a political paradigm shift characterised in part by the decadence of its main protagonists, Mauricio Macri and Cristina Fernández de Kirchner. In the latter’s case, she’s an increasingly less-powerful political actor who as vice-president is engaged in a civil war with her own hand-picked president, Alberto Fernández. She has been unable to force his hand, particularly in economic policymaking, and is now attempting to subvert the government from the inside. Alberto’s administration was already an inefficient one, but with a sector of the ruling Frente de Todos coalition actively playing against the Casa Rosada, it will further hinder its capacity to operate. Fernández de Kirchner appears to have lost her grip on power, but that doesn’t mean she’s out of the game. It is probable that she, her son Máximo and his La Cámpora political organisation will manage to set up bastions of power — probably in the Buenos Aires Province and in Santa Cruz — yet their centrality will be reduced to a point where they can be more defensive than anything else. Thus, the pan-Peronist coalition that is currently in power and that most probably will lose the Presidency next year will have moved decisively toward moderation.

As a large portion of society indicates that they prefer to leave ‘la grieta’ (the deep seated polarisation that characterises Argentine society) behind, the persistence of Fernández de Kirchner on one side and the attraction of Macri on the other raises the bar for the centrists. While Buenos Aires City Mayor Horacio Rodríguez Larreta seems like the best candidate for the opposition Juntos por el Cambio coalition, his challengers are far more entertaining and attractive than him. PRO party President Patricia Bullrich and even libertarian economist Javier Millei are much more charismatic, posing important obstacles for his aspirations in 2023. If Argentina can finally break the cycle of pendular moves in every presidential election, then moderation could pave the way to predictability and potentially growth. In a world starving for energy and food, Argentina has the potential to leave behind almost a century of decadence. It is far from guaranteed that it’ll happen.

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Agustino Fontevecchia

Agustino Fontevecchia


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