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Here's What It Looks Like When Your Country's Economy Collapses
Submitted by Adam Taggart of Peak Prosperity,
Argentina is a country re-entering crisis territory it knows too well. The country has defaulted on its sovereign debt three times in the past 32 years and looks poised to do so again soon.
Its currency, the peso, devalued by more than 20% in January alone. Inflation is currently running at 25%. Argentina's budget deficit is exploding, and, based on credit default swap rates, the market is placing an 85% chance of a sovereign default within the next five years.
Want to know what it's like living through a currency collapse? Argentina is providing us with a real-time window.
So, we've invited Fernando "FerFAL" Aguirre back onto the program to provide commentary on the events on the ground there. What is life like right now for the average Argentinian?
Aguirre began blogging during the hyperinflationary destruction of Argentina’s economy in 2001 and has since dedicated his professional career to educating the public about his experiences and observations of its lingering aftermath. He is the author of Surviving the Economic Collapse and sees many parallels between the path that led to Argentina's decline and the similar one most countries in the West, including the U.S., are currently on. Our 2011 interview with him "A Case Study in How An Economy Collapses" remains one of Peak Prosperity's most well-regarded.
Chris Martenson: Okay. Bring us up to date. What is happening in Argentina right now with respect to its currency, the peso?
Fernando Aguirre: Well, actually pretty recently, January 22, the peso lost 15% of its value. It has devalued quite a bit. It ended up losing 20% of its value that week, and it has been pretty crazy since then. Inflation has been rampant in some sectors, going up to 100% in food, grocery stores 20%, 30% in some cases. So it has been pretty complicated. Lots of stores don't want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.
Chris Martenson: So 100%, 20% inflation; are those yearly numbers?
Fernando Aguirre: Those are our numbers in a matter of days. In just one day, for example, cement in Balcarce, one of the towns in Southern Argentina, went up 100% overnight, doubling in price. Grocery stores in Córdoba, even in Buenos Aires, people are talking about increase of prices of 20, 30% just these days. I actually have family in Argentina that are telling me that they go to a hardware store and they aren't even able to buy stuff from there because stores want to hold on and see how prices unfold in the following days.
Chris Martenson: Right. So this is one of those great mysteries of inflation. It is obviously 'flying money', so everyone is trying to get rid of their money. You would think that would actually increase commerce. But if you are on the other end of that transaction, if you happen to be the business owner, you have every incentive to withhold items for as long as possible. So one of the great ironies, I guess, is that even though money is flying around like crazy, goods start to disappear from the shelves. Is that what you are seeing?
Fernando Aguirre: Absolutely. Shelves halfway empty. The government is always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don't increase prices, companies just are not willing to sell. It is a pretty tricky situation to be in.
Chris Martenson: Are there any sort of price controls going on right now? Has anything been mandated?
Fernando Aguirre: As you know, price controls don't really work. I mean, they tried this before in Argentina. Actually, last year one of the big news stories was that the government was freezing prices on food and certain appliances. It didn't work. Just a few days later those supposedly "frozen" prices were going up. As soon as they officially released them, they would just double in price.
Chris Martenson: Let me ask you this, then: How many people in Argentina actually still have money in Argentine banks in dollars? One of the features in 2001 was that people had money in dollars, in the banks. There was a banking holiday; a couple of weeks later, banks open up; Surprise, you have the same number in your account, only it's pesos, not dollars. It was an effective theft, if I could use that term. Is anybody keeping money in the banks at this point, or how is that working?
Fernando Aguirre: Well, first of all, I would like to clarify for people listening: Those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean banks – they are the same banks. If they are willing to steal from people in one place, don't be surprised if they are willing to do it in other places as well.
Click the play button below to listen to Chris' interview with Fernando Aguirre (36m:42s):
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Friend in Buenos Aires (I go there a lot) constantly bitches about the incredible number of new cars on the streets,
all in the last five to ten years. (Rhetorical) question is: why the disconnect between the reality on the ground and the
representation of a "crisis" these people (who have never been to Argentina, of course) promote? They care about "people", "true capitalism", "freedom(s)", "workers", "unemployment", etc. etc. etc. ... or they JUST care about (their) wallets? IMHO, they are a middle class of sorts of the financial world, jealous of the impunity of the same criminals and banksters they seem to denounce. Of course ... I could be wrong, no?
'the electronics shortages of last year are mostly resolved'
'Resolved' in the sense that Argentines can buy crap-quality, last-years-model, assembled-in-Ushuaia electronics at double the U.S. price.
Every time I go to BsAs, I bring down laptops for Argentines desperate not to get ripped off in their primitive, protected little market.
Evidently, living in Argentina has taught you to evade the truth and rationalize everything, like the locals do. La vida criolla, as it were.
And think about this: Argentina doesn't have trillions of their currency--TP--floating around the world that will come avalanche-ing back like the DC US does.
"Are you happy to see me, or is that just a dollar you're trying to get rid of?!"
Wouldn't that require all the other countries to buy back their own currencies? Is that likely?
Most other countries CURRENTLY do buy back their own currency..with US Dollars. The US Dollar is the World Reserve and is used to settle the Balance of Accounts in trade between most Foreign Nations.
Concerning most Foreign Nations their Domestic Currency is not spent outside of their respective borders. The quantities are minmal and mainly due to Tourism.
US Dollars are used to settle accounts.
Since that is not even a problem it is not likely.
Tell us about alternate methods of payment
SDRs and Gold?
Gold Bitches .....GOLD
Domo arigato Mr. Nakamoto
From what I've seen of the expats down here, and Doug's one of the leaders, they are opportunists that couldn't make it past the entry doors of the bigger boys clubs in the US, so they've relocated to easier pickings from the under educated and less experienced South Americans. They were classist shit wannabe's in the states, and they are just classist shits now. But, that's just an opinion from afar from one who always was taught that producing something was the walk and most everything else was just talk. A view from Southern Chile.
7.62 x 54, yup
7.62 x 51, yup
7.62 x 39, yup
all with matching devices for use
(looks like this didn't go where I expected, oh well)
World Cup can't come soon enough for Argentina's oligarchy. A grand diversion.
Sad but true. The Argentinians can be poor as dirt but they always have football. Always used to divert the sheeple. Sad.
Yada yada yada yada. Doom n gloom, doom m gloom, doom n gloom. Meanqhile the arrogant, narcissistic, lying illegal alien muslim fudgepacker contunues his grand imperial lifestyle at expense of yhe poor sap serfs and peasants paying their tribute to all the ruling elite turds they reelected. Hahahaha!
Luckily CPI and COLA benefits have risen 12% per year for the past six years to keep up with inflation....
NOT!
first cheap hot money flew into those emerging markets which allowed those countries to live above their means and they got used to it.
Now when that money started flowing back out of there they suffer.
Smart leadership would have been accumulating foreign reserves to protect itself from the next coming outflows.
But even Russia with its huge reserves can not protect itself - private businesses borrowed more money than the national reserves earned USDs from oil and gas sales.
Banksters can always print more because it costs them nothing to print
So the ultimate solution is to ban foreign banks to operate in your country and declare all debts in foreign currencies illegal
After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters.
Several things to consider when trying to understand inflation come to mind, first competition tends to keep price increases in check, and our slow growth economy is helping the consumer in many areas. People concerned about inflation down the road point out that an increase in the speed or velocity that money moves about the economy or where money flows could change all that. More on this subject below,
http://brucewilds.blogspot.com/2013/06/inflation-lurks-beneath-and-hidde...
When this will happen to the U.S. or even if it will happen at all is up in the air. Regardless, it's always wise to have some silver & gold, non-perishable food and some water stored. It doesn't make sense to sit on a pile of cash that doesn't pay interest and could be lost numerous ways. If you've got some extra money, buy stuff you'll need in the future now. Even if there is no collapse, it's a hedge against inflation.
Reading all the comments, it appears that zerohedgers have solved the problem. There never was a crisis in Argentina after all. If there ever was, it was their own fault, and if / when it all happens in the US, americans can blame argentina for debasing the US dollar.
To me it seems there is more than meets the eye in most cases. Here in the metro area (or the 'outskirts of Rome' as I call it) in the US, we have a bunch of people who are content to work at their jobs every day, contributing to their retirement plans, paying their bills, and generally wanting to continue their way of life. Looking at the local 'marts and grocery stores, one would get the impression that all is well in the US. The other side of the coin I see every so often, though, when I venture out into middle america or backwoods america. There is little employment, little money, and many people simply surviving due to the downturn that started 5 years ago. The prez can claim recovery and jubilation all he wants, but I think the undercurrent of despair won't be hidden forever.
Fernando Aguirre: Well, first of all, I would like to clarify for people listening: Those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean banks – they are the same banks. If they are willing to steal from people in one place, don't be surprised if they are willing to do it in other places as well.
That's why clever argentineans don't put their money into bank accounts and don't save in printer papers of any kind.
P.S.: What Fernando says happens mostly in the centers of big cities as Buenos Aires, Rosario, perhaps Córdoba (but it doesn't, as I have kids studying in Córdoba; they went to the supermarket on saturday and everything was pretty normal). Where I live? A province's capital. Things absolutely normal, here.
Remember:
Central Bank of Argentina belongs to the State.
Argentina doesn't have to sell bonds in order to print paper.
Argentina is a rich country. Plenty of resources of any kind, here. (The issue is distribution of wealth, as everywhere, but we have some advantages).
We can default (at least that!). EU countries are not allowed to. Are they allowing the US to default?
Lots of homework to do, everybody.
Lessons to learn from Argentina? Lots. Start trying to recover your Central Banks, take them away from the oligarchs. If we want some kind of "normal capitalism", a balance between public and private sectors is needed. If we want to assure free competition on the market, it's not reasonable few people owning Central Banks of main powers then controlling their finances and economies.