Perspective From Argentina: Is The US Next?
The following was sent to me from a contact I have in Argentina. His perspective on the economies of both Argentina and the United States are very interesting and I thought worth re-posting here.
I have researched potential impacts on the economy of the United States.
First, our economic engine, small business – is still alive, but under attack from the possibility of increased taxes – a vain attempt to avoid default on the national debt.
Historically, any increase in taxes on small business has decreased our national product. The Federal Reserve is currently buying US treasury bonds, a sure sign that China, a previous major buyer, has discontinued overtly supporting the US economy. As a result, the Federal Reserve will now have to monetize the federal debt – the money the US government owes to the Federal reserve to cover the printing of dollars.
Monetizing the debt means a devaluation of the US dollar. Foreign nations are complaining that devaluation of the dollar will negatively effect every export platform – those countries whose economies rely upon the US market. But, it is a mathematical certainty that without devaluation the United States will soon be bankrupt.
While the official position is that unemployment in the United States is around 10% the reality – if we count the unemployed who have given up searching for a job and those who have been unemployed so long that their unemployment checks have stopped – the true unemployment rate in the United States is around 22 %. This fact more than any other belies the “recovery”. We are not recovering, we are in pre-depression, last ditch bail out economy.
The continued printing of money – will dramatically devalue the dollar. Argentina holds the record for the largest national government default in the world. This happened because the Argentine government began printing money as a means to recovery. It did not recovery and the currency was devalued by 196% making the pesos that was originally one to one with the dollar, three to one and now, today it is still four to one. Today in Argentina, the middle class has little or no credit available to them. Food prices are so high that eating a well balanced diet and paying rent (their are very, very few private home mortgages here) is beyond the means of the middle class. People are protesting in the streets 3 or 4 times a week.
The United States is on track for an Argentine collapse. The Argentine people are doing whatever they have to do to survive, former engineers and executives are driving taxi cabs, millions are kept from starvation by meager rations provided by the government. Small businesses open and close within months because of taxes and corruption.
Many well dressed Argentines are selling on the streets. They buy goods made in China, lay out a blanket on the sidewalk and hope others, just as poor, will buy something that will give enough profit for food for the day.
Restaurants are apparently doing well, but the vast majority of customers are only having a coffee, not a meal.
Because of inflation – very few here enjoy the quality of life their had before the fall which occurred in 2001.
Tourists do not see the real Argentina. The downtown area is policed to the extent that all “appears” quite normal. Of course the rich and the children of the rich still drive cars and live a decent life, but even the upper class have lost 3/4 the of the value of their estates due to the devaluation.
What can you do, what do I recommend? Buy a year’s supply of food and water and expendable items you require for daily life – buy hundreds of pounds of coffee for example that can be used as a barter food – for fresh food. Buy medicines you might need, buy gold and silver – get out of the dollar as best you can. Gas will soon be $5 – $6 dollars a gallon.
Do this now, There has been no recovery – the bail out economy, the dollar bubble is very near bursting. The real estate collapse is not over – we are still breaking records for foreclosures.
The U S needs to create 175,000 new jobs a month just to keep employment stable. We are losing more than that number of jobs monthly – the government hires census workers, creates cash for junkers, gives temporary tax breaks for home buying but have done nothing toward repairing our economy. The only way our economy will heal is to allow those too big to fail to fail and make main street, the street once again.
Personally, I would like to see those who created the real estate bubble and the CEOs of the mega banks who stole the bail out money to buy more banks and continue to sucker money out of the middle class by rapid/inside trading etc. be prosecuted and put in jail.
Lastly, I hope you take action now. Crude oil will very soon be more than $150.00 a barrel in the very new future. Gold and silver are breaking records every day gold will be over $2000.00 an oz very soon please, please do your own research.
I like this blog but sometimes it makes the jump from well reasoned, contrarian writing to hyperbole. For example, the US federal debt in dollars has never been higher but as a percentage of GDP it is far lower than its historical high (more than 30% below): http://en.wikipedia.org/wiki/File:USDebt.png . I think it is far from inevitable that the US will default on its national debt. Furthermore I don't think the US is trying to monetize its debt by the Fed's latest actions. It's an attempt to deal with the trade imbalance with China and to spur inflation.
I don't think the main thing to take away from this is the part on defaulting, but the most interesting part is the description of Argentina, where former-execs are driving taxis, etc. I was just in Jos A Bank the other day, the guy who sold me a suit was telling me how he used to make $150k and is now making $25k… and can't find anything close to a job where he used to be. Trend or isolated example?
Trend…definitely. I opened my local paper today and was amazed to see a mainstream adoption of this phenomenon. It's a "wire report" and ran in a bunch of papers… I read it in the Dallas Morning News. http://bit.ly/dBwwnV
COMPARAR A LA ARGENTINA CON EEUU, ES SOLO ADMISIBLE DESDE UNA IGNORANCIA ABSOLUTA, TANTO EN LO ECONÓMICO COMO EN LO SOCIAL. CASO CONTRARIO, SOLO PODRÍA EXPLICARSE DESDE UN MANIFIESTO INTERÉS CORPORATIVO PARA PERJUDICAR A LA ARGENTINA. DADO QUE ARGENTINA ES UN PAÍS BASADO EN UN MODELO EXPORTADOR, CON SUPERAVITS GEMELOS, DESENDEUDÁNDOSE ACELERADAMENTE, EEUU TODO LO CONTRARIO. EN ARGENTINA LA PRESEDENTE CRISTINA FERNANDEZ TIENE UNA APROBACIÓN DE LA GESTION CERCANA AL 70% Y EN EEUU NO PASA LO MISMO CON OBAMA. EN CADA UNA DE LAS AREAS QUE SE QUIERA ANALIZAR, LA ARGENTINA ES UN PAÍS DIAMETRALMENTE OPUESTO A LOS INTERESES, Y RESULTADOS QUE VIENE OBTENIENDO EEUU. Hay que conocer y analizar personalmente ambos países para emitir una opinion que no esté empañada por los intereses corporativos de los medios de comunicación. Gracias
Kevin, at the time of its default (2001), Argentina was suffering from deflation, not inflation. It was probably caused by a shortage of local currency that resulted from the peso-to-dollar peg of that time.
This may be compared to the current deflationary concerns in the U.S.: Even though there is money in private hands, banks and companies are holding it instead of using it, causing a similar money shortage. The Federal Reserve prints this QE money mostly to change the deflationary outlook into a slightly-inflationary one, so that those banks and companies become motivated to use their cash.
Argentina couldn't take such a move because of the peso-to-dollar peg, and we saw the results. Its post-2001 inflation was and is a different story that has little resemblance to the current situation in the U.S.
Thank you for your comments. First, to the gentleman responding in Spanish.
Disculpa el malentendido. Por favor lee esta entrevista que me hicieron
recientemente:
"Sr. X quien es antropólogo, tiene una opinión semejante pero va mas alla. "Creo que los estadounidenses tendriamos que aprender de ustedes tanto en lo economico com en lo politico," dijo.
Al ver la soresa de la cronista frente a semejante afirmación, (Sr. X )fundamento sus dichos. "Ustedes tienen siempre mucha presión y sin embargo, pueden sguir creciendo. Es admirable como salen delas crisis." ….
"Con la caida de las grandes corporaciones hay que empezar a ver otras maneras, mas regionales , de concebir la economia. Tendria que haber bancos más chicos y o concrtrados como están en Estados Unidos", afirmó.
Cree que el ejjemplo de Cooperativa Communicar, editora de xxx, es una expresion de esa manira de afrontar las crisis y superarlas."
"Por eso estoy onvencido de que tendríamos que aprender de ustedes," (Argentina) cofirmo.
My comments at the beginning of this thread were published without being edited. I apologise…They were off the cuff observations of a North American living in Argentina.
Thank you for the opportunity to reply to your comments.
It is called inflation when goods and services cost substantially more. When the peso, and yes, the peso AR was/is pegged to the US dollar, fell from 1:1 parity with the dollar to 3:1 that meant that goods and services cost more pesos and therefore in 2001 Argentina suffered inflation of the peso.
Previously, Argentina began printing more pesos. The United States is printing more dollars, "monetizing" – the QEs buying its' own debt via bonds etc. This is real, and this similarity was my point.
I agree, my original post might have not been as clear as it should have been. Meanwhile, Buenos Aires has the aire of any modern European city, restaurants, theaters and the streets are busy, people are spending money, life is good and personally I feel free and safe and invite all who read here to visit Argentina and experience the beauty, charm and intelligence of the great Argentine people.
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