Argentina is going down

Argentina: lost its connection to sanity

Blame Argentina! Some people think it was the 15% drop in the peso that triggered the sell-offs we saw last week. On the last two days of the week, the Dow Jones lost nearly 500 points. And on Saturday, after-hours trading signalled worse to come.

It looked like the Dow would drop more than 300 points when the doors opened on Monday. That didn’t happen. Instead, the Dow sold off only modestly – down 40 points.

So, we sit tight, wondering if the beginning of the end is coming now or later. And when it happens, we won’t blame Argentina.

Argentina seems much too quirky and particular to be responsible for this. For example, it’s the only place we know where you get better banking services out on the sidewalk than in the bank.

Every time we go, we take a big wad of green pieces of paper with Ben Franklin’s picture on them. Then, driving directly to the town square in Salta, we simply stop the truck and beckon over one of the many black-market money-changers standing in front of the bank.

Last year at this time, one Ben Franklin would bring you nine pieces of paper with Julio Argentino Roca’s picture in purple.

Roca was no match for Franklin. Reports from Salta tell us that the rate has gone over 13. Meanwhile, the official rate changes too. It was only five a year ago. As of last Friday, it is eight. But wait, there are more official rates. There’s one for savers – 9.2. And one for travellers – 10.8.

Why so complicated?


Bill Bonner on markets, economics & the madness of crowds

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It’s a long story. But the simplified version is that the city of Buenos Aires is big and sophisticated. And like New York or San Francisco, it has socialist tendencies. Here’s how it works: the urban intelligentsia provides the ideas. The urban proletariat provides the votes. And farm exports provide the money.

But the rural productive sector can never quite provide enough money to satisfy Buenos Aires’ longings. Farmers and other producers labour under such binding restraints – eg, import/export restrictions – that even in a roaring bull market, such as we had three years ago, Argentina lost agricultural market shares.

Now, without much money coming in, the government prints money to pay its bills and lies about inflation. The money supply has been increasing at about 40% per year. And yet, the keepers of Argentina’s official numbers maintain that consumer prices have been rising less than 10% per year.

Then, when everyone had caught on that prices were obviously rising much more than 10%, the feds tried to control prices themselves as well as the statistics that measure them. Last year about this time, they enacted a ‘voluntary’ price-control measure at the supermarkets.

This was the work of Argentina’s economy and finance minister, Axel Kicillof. Mr Kicillof is probably a decent guy. He taught economics at the university. The papers say he “re-interpreted Keynes from a Marxist perspective”. With this intellectual toolkit, he says he has the leaks under control.

Most likely our man on the scene, Miguel, has a clearer picture. He reports: “I dropped my Kindle reader and broke it. I wanted to order another one from Amazon. But the government just announced a 50% import tax. That’s in addition to the 35% penalty I would pay on credit card purchases from overseas. You also have to go to [an office of the tax collector] and wait for hours to do the paperwork. It’s not worth that much.”

So, Amazon lost a sale. And the Argentinian economy lost a connection to sanity.

“This is just the beginning,” Miguel continues. “We’re headed into another real crisis. The people are restless and the government is desperate. We’ve got major union negotiations coming up. It wouldn’t be at all surprising to see riots, looting and some kind of bankruptcy or default.”

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4 Responses

  1. 05/02/2014, Kenny wrote

    I can see why they are so desperate to take the Falkands from the UK now. lol

  2. 06/02/2014, Nicholas Bown wrote

    Bill. You are right, the Argentina economy is in a dire state. But you and I have one thing in common, Bill, we love the place and the people, you with your farm (and 25 families on it to feed!) and me, well, I export from UK to Buenos Aires manufactured industrial goods, and I am still getting paid, over 20 years never had a bad debt with my clients there.
    So something must be going right. Just don’t tell everybody !

  3. 12/02/2014, David wrote

    Lets face it, the Europeans STOLE the native lands in Argentina, the natives would have run the country far better than the Europeans thieves!
    Argentina is always going through some crises, but it survives and life goes on, its ALL the fault of the GREEDY west. People like you and me are all to blame, we want cheap steaks!
    Let them go bankrupt, that will teach the international banks another lesson!
    The Falklands is no more Argentinas as is Argentina no more to the theifing Europeans who stole Argentina from the natives! At least the Falklands was not truly occupied before Britain occupied it and has since developed it, soon it will be the Hong Kong of the South Americas, take my word!!
    David
    London

  4. 13/02/2014, WillyuM hair wrote

    My son stayed with Argentinians in various parts of Argentine last year on a years South American round trip .
    He says the Argentinians are the same as us getting on with life and friendly wherever he went as indeed was the rest of South America

Commenting on this article closed

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