Argentina Makes Our Favorite Mistake – Again

Printing-Money-300x300A year ago I wrote an article warning that Argentina, under bubble-headed socialist president Cristina Fernández de Kirchner, is headed for yet another financial disaster by printing artificial fiat currency, denying the reality of inflation by cooking the books, and failing to restrain runaway government deficit spending.  I predicted things would only get worse in Argentina, and we would be right behind them because our own bubble-headed socialist leaders are following the same script.

I was right.

Argentina is in a world of hurt.  And so are we.  Our president told the nation this week that the state of the union is strong, and we are creating plenty of jobs.  But, he said, we must print more money to extend unemployment benefits again (beyond 99 weeks).  Only 63% of adults are active in the labor force.  A majority of Americans receive government checks.

Soon the Democrats will demand to increase our debt limit.  The Republicans will cave.  Again.  The Democrats insist we must grant amnesty and open our borders to millions of illegal immigrants who will put untold strain on employment and demand for public services.  The Republicans will cave.  Again.  The Democrats have thrown our system of medical care into a state of chaos, and all indications are that it will wreak even further havoc on our economy.  And the Republicans . . . well, you know.

Meanwhile, the Federal Reserve sucks up the wealth of those who have worked hard and saved money by holding interest rates to zero, passing it on to the mega-bankers.  They hold the Fed’s artificial dollars on their balance sheets and enjoy the risk-free interest, or play the stock and derivatives markets with their corrupt “pennies from heaven.”

As vehemently as our administration and the media deny it, we have a currency inflation bubble ready to pop.  We peasants should pay attention to the Argentine people.  They have been in this boat before and have developed strategies for dealing with their idiotic government.

One way they attempt to beat crushing inflation is to spend all of their cash as quickly as they get it.  Whatever one can buy with a dollar today will cost two dollars tomorrow.  Why hold on to cash?

Another strategy is to buy tangibles that will hopefully have some value to somebody in the future, even when cash has lost its value.  Real estate and gold are in this category.

But as predictable as the results are, they keep making the same mistake – they swallow more kool-aid, and elect more socialists.

They are the product of the same mistakes that have produced previous busts: uncontrolled government spending, heavy taxes on exports coupled with strict controls on imports and disincentives to foreign investors. Never learning from its mistakes, Ms. Kirchner’s Peronist party has pursued this course repeatedly, even as neighbors, including Chile, have soared past it in per-capita income by adopting free-market policies.  — Washington Post editorial board

Can we Americans learn from our mistakes?

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

It’s the perfect ending
To the bad day I’ve got used to spending
When you go all I know is
You’re my favorite mistake
You’re my favorite mistake

Don’t Cry for Argentina, Cry for Us

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.

Argentina_158624432_620x350 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.

Sound familiar?

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

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