“The whole world is Argentina now” says an Argentinian analyst.
What does he mean by that?
“All these manoeuvres, tricks; all these fixes. We’ve been doing that forever. You do one dumb thing and then you have to do two dumb things to try to correct the damage done by the
first thing. Eventually, you run out of dumb things. Then, you suffer high rates of inflation, or bankruptcy. Sometimes both.”
Politicians in Argentina haven’t run out of dumb things yet.
They are as clever and rascally as any public officials in the world. But inflation is already on their backs. Officially at about 10%, it was actually about 25% last year.
This year, the unofficial, off-the-record, informal tallies are putting consumer price increases near 35%. Since 2007, prices have nearly tripled, and the supply of money in circulation is increasing at about a 36% annual rate – which is beginning to look like the situation is out of control.
What should you do when inflation rates increase? Protect yourself by moving your money to a more solid paper currency, or buy things that won’t lose their value.
In Latin America, traditionally, people with money have saved their money in dollars, preferably in a bank account in Miami.
“But you can’t wait too long to do it”, says the analyst.
Ooops. Looks like it might already be too late for many Argentinians. Here’s the latest from the land of the Peronistas, from Daniel Politi:
“Earlier this month, Argentina’s Central Bank officially banned the purchase of U.S. dollars for savings, making official what had already been a de facto government policy following months of tightening controls on the foreign-exchange market as a way of protecting foreign reserves. Now only those travelling abroad are allowed to buy foreign currency provided they get permission from the government tax agency first…
“The prohibitions mark the latest in President Cristina Fernández de Kirchner’s whack-a-mole approach to policy. The government imposes palliative measures to deal with problems of its own making, using tactics that only make them worse in the long run.”
The US is coming to resemble Argentina. Its policymakers try one dumb fix after another. But so far, savers still believe they can trust the dollar. And they are probably right – for a while.
People in Greece and Argentina seek refuge in the dollar – causing the greenback to rise in value. And, for the time being, rising prices merely reinforce the trend. Record prices in the farm sector, caused by a drought and heat wave, are already driving up food prices. But this just causes households to reduce spending in other areas. Less spending leads to lower sales, lower employment, and lower prices for other goods and services!
To our Argentinian friend: “It doesn’t seem much like Argentina.”
“Not yet,” came the reply. “But it will.”
for The Daily Reckoning Australia
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