Argentina’s political dominance and high inflation is a good example to understand our upcoming future. Once the eighth largest economy in the world, it now is in a dire state of irreversible degeneration, with an economy divided in two, the not haves and haves, people who gave up and the ones who charted their own path, independent of a government.
The world's inverted pyramid of debt is going to tumble. The EU’s appalling moves to save Greece from its self-inflicted death should be the red flag to capture your attention and to take action. One of the most powerful men in European finance, Josef Ackermann – CEO of Europe's leading bank, Deutsche Bank – publicly acknowledged that many of the continent's major banks are essentially insolvent. Ackermann said, "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels…" Lack of leadership, and indecision in Europe for sure will lead to further bailouts from the ECB.
When the dollar/euro collapses or if one of the governments makes a stupid move in a last-ditch attempt to save its currency, it doesn't matter where you've got your assets, as long as they either or both are in real gold or silver, or as tangible investments across the border. Short of getting on a plane and buying land in South America, this is the kind of global diversity that will protect your wealth, as the world's economy finally implodes.
The eventual collapse could take years or even a decade to unfold. It's seldom that an economy as strong as America and the EU implode overnight. But it is undeniable that trouble is brewing where only one headline in the paper could spark an inferno. If that happens, globally diversified individuals will be the survivors.
There are examples of that idea all over the place in Argentina. When Argentina defaulted in 2002 and its economy collapsed, only the people with money outside the nation's borders were able to quickly regroup and continue creating wealth. With as result, many citizens have lost respect and hope that they will ever be able to trust the "system" again.
Inflation plays a huge role in the Argentine economy. Because of massive government spending, prices rise by the week. It creates a volatile and skittish economy.
A European entrepreneur: "I still had the European mindset that I could absorb some of the rising costs. But that would have killed me. So now, I don't even worry about it. I raise prices as needed. The customers are used to it." When the meltdown hit over a decade ago, he was able to take advantage of the depressed prices. He now owns several businesses amongst a world-class restaurant. Most of the people were not as lucky, because their money was entirely under the control within the country and devalued overnight.
Only 2% of houses are sold with a mortgage as an effect of the high, long-term inflation. Without mortgages, cash is king. But few Argentines are able to acquire that much cash, which forces them into a tightening rental market, transferring their wealth, instead of acquiring it.
How Argentina got to where it is now is similar to what is happening in America and the Europe. Argentine government is an economic manipulator. Until its fiscal meltdown a decade ago, the government controlled the oil companies. Bureaucrats determined who got what and how much. But when the government went broke, it sold most assets, including the oil companies. Now, they are privately owned, and making money. With tight price controls in Argentina, the domestic companies shipped their energy across the border into Chile. That left cars and trucks low on fuel. But with inflation running rampant, the government desperately needed to keep fuel prices low. With supplies tight, cars lined up for hours for fuel. Last year, though, the government backed down. It began to remove price controls. And fuel lines were reduced to one hour.
Despite a socialist government, over 50% of the populations lives below the poverty line and only survive by stealing, scavenging, etc. In short a very horrible and discouraging environment that won’t improve soon.
People have lost faith in government-backed money, and meanwhile understand by experience, that the monetary policy, similar as the Fed and ECB apply, is the danger of fiat currency, which doesn’t imply you have to be a gold or silver bug, but these assets are the only simple way to protect your wealth.
Another example: The former head of Argentina’s central bank was dismissed by the government, because politicians insisted on using the bank’s financial reserves for themselves, the nation’s accumulated foreign currency reserves were vital to pay off its foreign debts. The banker, to his credit, refused, and was fired in February 2010. He was replaced with a banker from the same mold as Ben Bernanke and Mario Draghi. They are easy pliable, flexible bankers, in plain text ‘crooks’. Even this new head of the Argentine central bank tells his people there is “no correlation” between money printing and inflation.
In Argentina you know where you stand, the politicians are crooked and the bureaucrats are incompetent, if not completely mad. You have to find a way around them, a way to dodge their rules, a way to protect yourself. You know the government’s figures are lies and its promises are empty. You know what to do with its currency too, try to get rid of it at the earliest opportunity.
That’s why the government in Argentina has dogs at the international airports. They’re not trying to stop people from bringing in drugs or weapons. They try to stop people from taking out dollars, striking fear in the hearts of those who would attempt to convert their pesos to dollars and take them where they might be safe.
Right now, the Cristina Fernandez Kirchner government announced the forced nationalization of the nation’s biggest oil company the Spanish owned REPSOL-YPF. The government said it was unhappy with the way the owners didn’t invest in new developments. So, they take the company into their own hands, as if the penniless government will invest more!
The Argentine government passed another stupid law recently. It prevents foreigners from owning large parcels of farmland, aimed at stopping foreign landowners from accumulating substantial holdings. So this is Argentina! Soon the western world will be in a similar shape.
If you intend to move to South America you better think about Uruguay or Chile. But you need to follow the rules carefully. They never had so many immigrants from Europe and America as recently is the case. These are people who think Europe and America are going broke and seriously fear the upcoming social unrest implications. In Uruguay and Chile they have solid banks. There is not a lot of debt, and are not too far away from either Europe or America. People like the relaxed, safe lifestyle. They buy a farm in the country or an apartment on the ocean. They prepare for a place in the event something bad happens in their home countries.
Tags: Argentina, economic crisis, money, future economies, global crisis, debt