All of this talk about “the fiscal cliff” sounds so sudden, so personal. Like something that happens to you, and me, as individuals. We fall off the cliff, like Wiley Coyote, and it hurts for a minute. Then we are right back chasing the Road Runner.
The dirty little secret is we have screwed things up so badly for the next generation – maybe several generations – that it is beyond the point of repair.
Economics is not a mystery. There is a ton of historical evidence about what happens when you try to goose the economy and stave off debt by printing fiat money – it’s called inflation. Argentina wrote the book on how to create rampant inflation.
In the 1980s the inflation rate in Argentina ran in the triple digits. When it hit 12,000% in 1989, suddenly everybody was broke – even those who worked hard, saved money, and played by the rules. You have money? Big deal! It doesn’t buy anything! All of the predictable ugly behavior occurred – stores were looted, violent protests erupted, and politics devolved into a cesspool of corruption.
In 2001 the IMF bailed out Argentina, preventing bloody revolution. In exchange, there were strings attached: you will manage your economy conservatively, and you will hold inflation to sane levels. Twelve years later, Argentina is on the verge of being tossed out of the IMF, and perhaps the G20 for failing both dictums. Stores are again being looted. Argentine president Cristina Fernández de Kirchner is accused of “cooking the books” by reporting much lower inflation rates than actual. While government reports claim inflation rates of 8% to 10%, life on the street shows a rate closer to 25%, and accelerating.
Our Federal Reserve, in cahoots with our administration, is pretending that we have no inflation in the US. By holding interest rates to near-zero, they “think” they are stimulating the economy and tempering unemployment. But it’s not working. Banks, because of the risk of a rapid increase in interest rates down the road, aren’t loaning money to businesses. Consumers who rely on interest from savings have puckered up. And investors seeking decent returns gobble up riskier investments, building dangerous bubbles just waiting to pop.
Our government is trying the old “cook the books” strategy too. While our administration claims success at creating jobs, our rate of labor force participation declines, and “real unemployment” takes a toll on American workers. Last week 20,000 applicants scrambled after 1,500 available flight attendant jobs at bankrupt American Airlines, who cut 2,200 higher-cost employees in a contract buyout. And another 90,000 Americans chose permanent disability over the fight for jobs in December – breaking another record and holding unemployment rates conveniently and artificially low.
We are told that there is no inflation in the US. But anyone who has been to a grocery store, a gas station, or any other destination not frequented by beltway-insiders knows better. I freaked when I recently saw plain old hamburger at $6 a pound at a discount supermarket.
In 2001, Pat Buchanan wrote a blistering and revealing article about the debacle in Argentina.
It is a catastrophe for South America’s second economy and nation. Four years deep in recession, with unemployment at 18 percent, tax revenues vanishing and credit rating ruined, Argentina will now resort to the printing press. Fiat money – a “third currency,” the “argentino” – will be introduced in January.
“Printing money to satisfy the popular desire for spending unmatched by taxation is a recipe for chaos,” warns the Financial Times. “The new currency would then swiftly disappear into the hyper-inflationary flames.” Rely upon it. For the Peronists are less concerned with chaos than victory in the March elections.
For this disaster, Argentinians are, themselves, to blame. They have repeatedly elected demagogues and wastrels who misruled and looted their nation.
His scary prediction came true then for Argentina. We’re next.
Who will write our epitaph? And will our children and grandchildren forgive us?
Tom Balek – Rockin’ On the Right Side
Have I said to much?
There’s nothing more I can think of to say to you
But all you have to do
Is look at me to know
That every word is true
Don’t Cry For Me, Argentina (Evita) – Madonna