Why Argentina is a dream for economists... - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 22 August 2012
Why Argentina is a dream for economists... A  A  A

Ouzilly, France

Have we told you how much we love Argentina? It's a dream...at least for an economist with an 'I-told-you-so' bent and a sense of mischief. For everyone else, it is a nightmare.

Argentina is to the economist what a corrupt small town must be to the novelist, where he can see who's sleeping with whom, who's drinking too much, who's not paying his bills, and who's getting too fat. Who's doing right...who's doing wrong...so much inspiration...!

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In Argentina - past and present - we get to see the whole gamut of how much damage economists and politicians can do.

You see, Argentina is naturally a rich country. It is big. It has huge potential...with the richest farmland in the world...plenty of water...plenty of minerals and other resources. It's a European country - well, it is inhabited by immigrants from Sicily, which probably explains a lot. As such it is heir to all the science, experience and philosophy of the Enlightenment...and all of the technological progress of the Industrial Revolution...and all the claptrap theories and perversions of the European and American intellectual elites of the 20th century..

So, what do Argentines do with their good fortune? They sabotage it, of course. The 5th richest country in the world in 1900...today, it is in 50th place. Buenos Aires has more people in psychotherapy than any other city; a fact which might also explain a lot.

Is there is any policy so wrongheaded that the Argentines haven't tried it at least twice?

Well, yes... They haven't followed the path of the Bolsheviks...or the Maoists... They haven't engineered mass famines...mass murder (just a few thousand victims, during the military junta years)...or mass land expropriations. But...there's always the future!

What we like about Argentina is that we can observe the mistakes and the disfunction and still live reasonably well - at least in our mountain fastness.

It was only a few months ago that the Argentine government expropriated the country's biggest oil company. Now, it has taken over the private company that prints its pesos! Here's that latest from the Buenos Aires Herald Tribune (we like the little paper so much, we're thinking of trying to buy it!):

...on Thursday the Senate voted by a margin of 44-20 votes to expropriate the Ciccone money-printing company (eight other senators, including ex-president Carlos Menem, remained on the sidelines), all 64 senators could be said to have sound reasons in favour of their stance. Who could argue against the principle of monetary sovereignty underlying this bill (since not even the world's most free-market economies would think of privatizing the coinage)?

But here is where it gets interesting. When the government expropriates...it pays compensation. It might take over the company printing its money for some sort of deformed patriotic motive. Or, it might do so because insiders have gotten control of the company and are now going to cash out at the taxpayers' expense.

Whatever the irregularities within Ciccone preceding this move and however justified the suspicions that this nationalization is one vast cover-up, all the shady details of the case are not the concern of Congress, strictly speaking, but of the court investigating the scandal...

That's what makes everything in financial life on the pampas so darned interesting - you know it's corrupt...but it's usually even more corrupt than you realize. There's often a corruption within the corruption ..a back-story...a scam on the scammers...

In short, it is delightful to watch...as long as you're not too close.

Now that the government has taken control of the company that prints its money, what will happen? You can expect that it will do about the same thing as other government-controlled enterprises. Expenses will rise; output will decline. It will be like the US Post Office...Amtrak...or the Social Security Administration. Even at printing money, Argentina will be ...hapless...and incompetent.

Already, a peso printed in 2012 will lose a third of its value by 2013. Soon, with the money-printer run by the government, a peso will have lost all its value even before it is printed!

Back in the US, the feds are still stuck in Tokyo-mode. They print money. They lend a ZIRP (zero interest rate policy). They bail out key industries. But the cash doesn't go into the economy. It doesn't push up consumer prices - at least, not yet. It goes into bank vaults...where it is used to buy US Treasuries. That is, it is lent back to the people who printed it in the first place!

Nice system. Nutty. Pointless. Dopey. Very Argentine.

And it must be just a matter of time until people in the US begin to anticipate the same sort of shenanigans - with the same sort of results - as have plagued the pampas for half a century. According to Larry Summers, the government will grow, no matter who wins the White House. Why? Because more old people mean more demands for pensions and health care. Second, higher debts mean higher debt service payments. Third, the things that government buys - health care and military hardware - are getting much more sophisticated and expensive. Compared to TVs, the price of a hospital stay has increased 100 times since the early '80s. And fourth, the feds will have to spend more on infrastructure...and more to offset the effects of growing inequality of incomes, says Summers.

As it grows, the government will make more quirky interventions in the economy...redistribute more wealth...depress the rate of real economic growth...and make people poorer...just like the government of Argentina has done since the '50s. And then, it will crack up and go broke from time to time, again, just like south of the Rio Plata.

Government services will cease working. Government checks will cease having value. Government agencies will collapse and government employees will become the enemies of the people.

But at least the Social Security Administration, headquartered in Baltimore, is getting prepared. Here's an item from the Economic Policy Journal:

Social Security Administration To Purchase 174 Thousand Rounds Of Hollow Point Bullets

What does the Social Security Administration fear?

The SSA is set to purchase 174,000 rounds of hollow point bullets that will be delivered to 41 locations across the country, Infowars is reporting.

Hollow point bullets are designed to expand as they enter the body, causing maximum damage by tearing apart internal organs.

A solicitation posted by the SSA on the FedBizOpps website asks for contractors to supply 174,000 rounds of ".357 Sig 125 grain bonded jacketed hollow point pistol ammunition."

An online ammunition retailer describes the bullets as suitable "for peak performance rivaling and sometimes surpassing handloads in many guns," noting that the ammo is "a great personal defense bullet."

The ammunition is to be shipped to 41 locations within 60 days of purchase. A separate spreadsheet lists those locations, which include the Social Security headquarters in Baltimore, Maryland as well as major cities across the country including Los Angeles, Detroit, Oklahoma City, Dallas, Houston, Atlanta, Denver, Philadelphia, Pittsburgh and Seattle.

The DHS also recently purchased a number of bullet-proof checkpoint booths that include 'stop and go' lights, says Infowars.

The US is still a long way from Argentina...but it is getting there.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Why Argentina is a dream for economists..."

shaheen mohmad ashraf

Aug 26, 2012

mr bill , why r u potrying picture of doomsday , ur articles giv impression as if whole world economies especialy USA econmy is on the verge of default , about to collapse , as if terrible recession has overtaken usa econmy , plz heighlite positiv points as well , other day i read somwhere that usa econmy has genrated several lakh jobs

Equitymaster requests your view! Post a comment on "Why Argentina is a dream for economists...". Click here!

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