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Argentina’s Economy Still Struggling to Recover From Years of High Spending and Government Interventionism

By Terry | economic decline

Argentina Barter Market

Argentina was once one of the world’s wealthiest Nations– 100 years ago, Now it is paying dearly for Its government controlled economy and central bank deficit spending.

In 2001, in Argentina, there was a run on the bank due to running high deficit spending thanks to the their central banking system, which like our Federal Reserve, is a privately held bank that creates money from nothing. Based on the Keynesian model of spending your way out of a fiscal decline, Argentina has tried to do just that. It hasn’t worked and never will.

The persistent deficits led to mounting debt and excess currency circulating which led to rampant inflation, eventually leading to economic, social and political chaos, similar to what is happening in Venezuela today.

A severe depression, growing public and external indebtedness, and an unprecedented bank run culminated in 2001 in the most serious economic, social, and political crisis in the country’s turbulent history.

Then, began the government meddling to “fix” the problems. They didn’t.

  1. Eduardo Duhalde ended the 1 t0 1 peg of the peso to the dollar in early 2002. The economy bottomed out that year with a drop in GDP of 18% and 60% of the population under the poverty line.
  2. Then, they grew the economy with deficit spending leading to an annual growth of 8.5% for 6 years. Problem was, it was growth based on printing money, not on actual wealth production based on manufacturing to meet needs.
  3. Nestor Kirchner is elected and respond with price controls (always a bad idea and always fails) Cristina succeeded her husband and under reported inflation. (Sound familiar?) Growth slowed sharply. Rebounded with money pumping in 2011 but fell again. More government intervention followed. They nationalized the YPF Oil Co. and tightened imports with currency controls. This led to ever more inflation and a subsequent fiscal decline.
  4. Next they tried an $11 Billion currency swap with China in July 2014 which pumped up international reserves and also gave China controls in the economy.  Still not enough.
  5. Entre President Mauricio Macri who was elected in Nov 2015. Macri is taking steps now to liberalize the economy, lifting capital controls, floating the peso, removing export controls, cutting energy subsidies, negotiating debt payments with bond creditors. In other words, introduce free market economy principles.

While the Argentinian economy began breathing again, they are still not out of the water.

Soup Kitchens and Barter Now

A recent AP article describes an economy where:

Argentina Soup Kitchen

In this Sept. 6, 2018 photo, people line up for a small meal outside a soup kitchen at a community center in the Villa 1-11-14 shantytown on the outskirts of Buenos Aires, Argentina. Analysts say that poverty, which affects about a third of the population, will rise this year, and the economy will take a dive. (AP Photo/Natacha Pisarenko)

Men wait outside the metal-grill door of a soup kitchen in a slum, hoping to get a small serving of beef and mashed potatoes. At a barter market on the capital’s outskirts, a woman tries to persuade another to exchange for her granddaughters’ tiny shoes.

Argentines are struggling in crisis in what was once one of the world’s most prosperous nations. Consumer prices are soaring, unemployment is high and the Argentine peso has plunged, bringing back haunting memories of the country’s economic meltdown in 2001 that pushed millions into poverty.

A growing number of people arrive at the “Happy Kids” soup kitchen in the Villa 1-11-14 shantytown, where servers try to stretch out steaming pots of stew because many more than expected are lining up for food.

A series of events like a severe drought hasn’t helped. Then, Macri turned to the IMF (central bank borrowing once again) for a $50 Billion loan. Austerity measures have been generated including reduction of government ministries, but the peso keeps losing value. (It’s called inflation from excessive debt. Add more debt. Lower the value of the currency.)

Argentines are now turning to barter clubs which arose around the 2001 crisis. However, the falling peso is running up food and fuel costs. Inflation is expected to be at 40% the Central Bank says. What they don’t say is that they are very much a cause as they create money from nothing and drive the peso down with more inflation.

Macri Having Problems Delivering

The current mess is far from the promises of Macri. The conservative president took office in 2015 vowing that he would revive Argentina’s weak economy and end poverty. Fact is, when you gut an economy with socialist interventions and its sister- deficit spending (creating money from nothing to expand the money supply and allegedly pay off debts), it is hard to fix- even with free market interventions.

There is no soft landing to a debt created bubble and producing government dependent populations. Bubbles burst leaving nothing behind. People get angry when bird feeders they were used to are removed.

The AP article goes on to say:

Many of Argentina’s poor live in slums known as “misery villages,” where they often lack access to transportation, running water or sewage. Argentina’s northern regions have chronically high rates of child malnutrition, even though the country remains a top global grain supplier.

On a recent day, dozens of women gathered at a barter market in the outskirts of Buenos Aires to trade everything from pants and cosmetics to toys, bags of rice and cooking oil.

“We’ve gone back to the same as before. We’ve gone back to bartering,” said Lucia de Leon, who had a table where she offered to trade canned food and used shoes.

Socialist, government interventionist societies do not work and neither do central banks. Argentina is yet another example. Other South American nations may soon follow since much of this continent has become sucked in to Marxist socialist idealism and central banking (another Communist idea btw)

Are We Looking At a Mirror Here?

The real lesson here is that Donald Trump inherited an economy with a central bank (Federal Reserve) and high regulatory government interventionism. He is still using Macri-like tactics with continuing spending as on this $713 Billion for the military. We will see what happens but with the Feds raising interest rates, I’m still concerned.

Obama trashed the national debt with his $10 Trillion spending spree. Personally, I think it was intentionally designed to hurt this nation and not just foolish spending. Read Sol Stern’s article on Acorn. Their Wade Rathke created plan was to bankrupt cities with welfare and replace the shattered economy with Marxist socialism. Obama worked for Acorn. His primary job before launching into politics btw.

The problem here is that Argentina may be a mirror of the U.S. on a smaller scale. Stay aware- Macri is still having a hard time getting things going after years of central banking abuse and government interventionist policies. Additionally, he is returning to deficit spending to “fix” the problem. Kind of like throwing gasoline on a fire to put out the flames because it is a liquid.

Politicians of all stripes and kinds don’t like to be pinned with the blame for people’s pain. We are still at a dangerously high level of debt- approaching $21.5 Trillion.

We may be looking at ourselves when looking at Argentina. I hope Trump doesn’t lead us in their foot steps. The stage has been set by all the big spenders who preceded him. Let’s hope he doesn’t fall into the same trap as Macri is falling into.