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Argentina As A Model For Greece
Submitted by Erico Matias Tavares via Sinclair & Co.,
An interview with Miguel Ferreyra
Miguel Ferreyra de Bone is a finance professional and guest lecturer of Macroeconomics at the Universidad del Salvador in Buenos Aires, ARG, from which he has a degree in Business Administration and Commerce. During the course of his studies, he also completed coursework at the University of Vermont focused on International Economics and Latin Markets. Presently, he is engaged in research at Universidad del Salvador to determine an appropriate discount rate for investments in emerging markets.
His current and past work experience includes an economist position at Ámbito Financiero, the leading financial newspaper in Argentina, an advisory role at Banco Galicia, the largest private bank in Argentina by AUM and as a commodities analyst at both Cargill and Ledesma. He also collaborates with Global Risk Insights as an economic analyst focused on Latin America. He is well versed in the economies of South America and how they impact the global markets.
Erico Tavares: Thanks for being with us today Miguel. As we’re seeing this Greek tragedy unfolding, it occurred to us that should they decide to leave the Euro Argentina might give them some ideas of what to do next.
As an Argentinean economist and professor focused on the Latin American markets, can you please share with us some of the factors which have led to the very repressive foreign exchange regime currently in place in your country?
Miguel Ferreyra de Bone: A dramatically overvalued exchange rate, where the Argentinean Peso had been pegged to the US dollar at 1, faulty fiscal and economic policies and a huge expansion in debt – both public and private – led to a sovereign default in 2001.
During the 1990s the debts just kept on piling up to pay for all sorts of expansionary policies. Eventually new debts had to be issued just to pay the interest of the prior debts, at which point the whole situation became unsustainable. This is somewhat similar to what happened in Greece.
In 2003, Nestor Kirchner, the deceased former President of Argentina who was also the husband of the current President, Cristina Kirchner, was elected on a promise to jumpstart the economy. He started by incentivizing industry and production and further devaluing the currency which led to a strong recovery – in fact boom times according to some analysts.
At the same time, by political decree the central bank stopped being independent, which was a feature of all the mandates of the Kirchners. As you know, there are many studies around the world that show that the less independent central banks are, the more inflation is produced. And this was the case in Argentina. The central bank is then increasingly used as tool to promote internal consumption. This has turned out to be an unfortunate decision.
ET: We remember that. Inflation actually started to pick up markedly from 2008 onwards.

Argentina Inflation Rate
MF: Right. The inflation rate started to pick up as you can see in the graph above. But at the same time there were still no problems with the exchange rate, everyone could buy foreign currency.
Actually, this is an important characteristic of Argentinians. Collectively we are the second largest holders of US dollar bills per capita in the world. We have a culture of “dollarization”, basically, because we don’t trust the Peso. This is the result of recurring economic crises over the last 50 years – pretty much every 10 years we have a big crisis… 1989, 2001, 2009-10. We are still stuck in the last crisis by the way.
So in 2007, Cristina Kirchner was elected as President, taking over from her husband, who passed away soon after. Argentina was not immune to the global economic crisis of those days and soon the new government started looking for ways to increase revenues, to pay for even more expansionary social policies: subsidies on a range of products and services for lower income families, payments for each newborn child and so forth.
Argentina is a major exporter of soybeans. In fact the entire agro-industrial complex generates a very large amount of foreign currency, in excess of 60% in a regular year. As soybean prices started to recover, the government wanted to increase the export tax from 30% to 50%. The proposed tax was almost “progressive”, meaning that when prices were high tax rates would be higher and vice versa. But producers vigorously revolted against the measure and it ended up not being introduced.
In 2010 the economy started coming off the rails, especially with the shockwaves coming from the United States and Europe. Faced with dwindling foreign reserves, the government took measures to restrict its citizen’s access to foreign currency. The excuse was that having a national currency like the Peso people would still chose to transact in US dollars. The reality is that foreign currency reserves were so low that they were incapable of sustaining the ongoing economic activity, especially after the fall of soybean prices in the world markets.
Up until that point apartments and other big ticket items were bought and sold in US dollars. And you can understand why. As uncertainty rises, the Argentinean knows that the Peso is not reliable and there’s a flight towards the US dollar. This was putting a lot of pressure on reserves. So the prohibition was put in place – for people and for companies.
These restrictions have been eased somewhat and some conversion into US dollars for savings purposes is allowed. But the thresholds, based on income levels, are very low and you always get converted at the official exchange rate anyhow.
ET: Curiously enough, the prohibition not only applied to foreign currency but also to gold. So we have the admission of the Argentinean government that gold is actually money...
MF: That is absolutely correct. You cannot buy gold as a savings / investment vehicle in Argentina today.
When the government forbade the ownership of US dollars, Euros and so forth, people started to buy gold bars instead. So once it realized that its citizens were trying to find other alternatives, the government took steps to also prohibit domestic transactions involving physical gold.
ET: That’s amazing – both in its scope and its admission. Other restrictions soon followed right?
MF: Yes, two others in fact. The first was that any foreign companies were forbidden to send dividends abroad, including to their home countries. As a result, all multinational companies must leave their dollars in Argentina. It’s a very difficult situation for them.
The government also implemented tight controls over imports. Again the logic was to prevent the flight of currency out of the country. And so the government started to control imports one by one, a process which is very difficult and highly bureaucratic. Any company wanting to import equipment and raw materials for instance must fill out a lot of paperwork, present it at the right government office and then the import will either be authorized or not. In certain cases this can take months.
We have many problems where the imports are not authorized and there are ships at the port that cannot unload for days. The cargo can go bad, trades become unprofitable and so forth. And why? Because that’s a way for the government to restrict currency flight out of the country.
ET: Then there was also the nationalization of Repsol YPF.
MF: Again, same logic. Argentina became a net importer of petroleum products (17% of the overall imports are energy related and only 6% of the exports belong to the oil sector) and these were weighing heavily on the balance of trade. So they took this unprecedented step and nationalized Repsol’s stake in YPF. Curiously we still have a big trade deficit in this area…
ET: And what has been the result of all these policies?
MF: The ones that have impacted us the most in our daily lives were the import restrictions and the prohibition to buy foreign currency.
As a result of the latter a black market for US dollars has emerged, the “dollar blue” as it is known, managed by a small by influential number of people. People talk about there being 50 or so companies that handle this – illegally of course, working in the shadows of the economy. This is nothing obviously nefarious, by the way. Most often you go to a normal store like a shoe shop and you are taken to a small room at the back.
ET: Presumably the government knows about this but needs to let some steam off the pressure cooker…
MF: Yes, it is well known that the dollar blue goes up when the government “forgets” about the issue and it goes down when it wants it to go down by threatening traders with police actions…
ET: In fact, all the financial newspapers in Argentina publish the two exchange rates, the official and the blue, side by side…
MF: It is there because it is very important for the Argentinian to know the value of the two. It’s actually an important economic indicator for the people.
I should also add that when Argentinians travel abroad, they must also pay a 35% tax on all the purchases they do abroad. If you pay $10 for a coffee in New York, you must pay an additional $3.5 to the government after you return home. There are some offsets to this depending on your income and certain thresholds but it just shows how far this policy has gone. In fact few people take advantage of this because as a lot of the economy is transacted in the black market, and few people want to show their real earnings to the government in order to get this refund.
ET: What about the tourists going to Argentina? It’s evidently a wonderful country and many people want to go there. How do they do it?
MF: The tourists bring their own currencies and for them it’s very advantageous. The dollar blue rate is at about 13.5, compared to an official rate of 9.1 or thereabouts. So they are getting around a 33% discount! It’s like the country is on sale for them.
But for Argentinians these restrictions are terrible. We don’t have a transparent system, the economy is not functioning well. People for the most part do their purchases using cash only, things like houses even.
ET: In which cash currency? US dollars?
MF: Houses for the most part are sold in US dollars. But the housing market had a big fall as a result of these restrictions. If you did not have dollars before, it is going to be very hard to buy a house today. You might get a mortgage, but nobody will want to sell you an apartment for, say, 600,000 Pesos. Why? We have an unofficial inflation rate of 28% per year, so that money will lose a lot of value. A year later you will have lost around a third of your purchasing power.
ET: And where is this inflation coming from? Not from abroad given all these restrictions…
MF: The central bank is following a very expansionary policy. They print money to promote consumption. There are subsidies for everything: public transportation, electricity, gas, airfares, train fares and the like.
A person in Buenos Aires today pays 3.5 Pesos to go from one end of the city to the other. That is 38 cents! This is incredible. Most economists say that the real price of that ride should be at least 10 Pesos to be comparable to other countries in the region and given the cost structure of the company. So the difference of those 10 Pesos in real value and the 3.5 paid by that person are printed by the government.
We even subsidize football / soccer in Argentina. Have a look at “Futbol Para Todos”. The government pays and subsidizes all the matches on public TV. In most other countries it’s the private companies who sponsor that; here it’s the government. There are only a small amount of private ads. And we are talking about an enormous amount of money for this, about US$295 million in 2014.
The level of subsidies is incredibly large, even when the economy is doing poorly – as a result of these policies and the fall in international commodity prices, which has also affected other producing countries like Brazil.
And why? We have a populist government, which has been known to misreport the official statistics. They even stopped publishing the poverty indicators in Argentina. Imagine that. So we no longer know how many poor people there are. They even misreported the inflation rate, claiming it was about 10% per annum up until a year ago or so. Since then the IMF has put pressure on the government to stop playing funny games with statistics, so now the official statistics are closer to 26% per annum. So there was a 16 percentage point shift, ostensibly, by official decree.
The Argentinian economy today is sustained by consumption alone.
ET: That’s just incredible. And if you are an exporter, your costs are rising fast because of the inflation rate. But you are not getting compensated by the official exchange rate. In other words your real exchange rate is appreciating quite strongly, which must be severely squeezing your profit margin...
MF: That’s exactly right. At the official exchange rate Argentina is not competitive in the world markets. In South America we have lost a lot of market share for that reason. The exporters are the ones demanding for a strong devaluation of the Peso. Some analysts suggest that it should be closer to 12 to regain some momentum, and we are at 9.1.
Therefore Argentinean products are too expensive. There are exporters who can’t even cover their costs. The dairy industry is no longer profitable. And the exporters of soybeans are also suffering, so they have stopped production. The smaller producers have to rent their fields to the larger producers because they just can’t make money without the benefits of scale.
ET: Based on what you described it seems there is a bifurcation in Argentinian society depending on who’s on the receiving end of these policies. Industry, exporters and commerce all seem to want a change more aligned with market principles. On the other hand there must many lower income people who want to keep this system going. Will there be a change coming?
MF: In October we will have Presidential elections. President Kirchner is in her last term, as according to the Constitution she can only be elected for two terms.
There are basically two frontrunners based on the current polls: Daniel Scioli, the candidate from the Peronist Party, Kirchner’s party which is currently running the country, with about 35% of the vote; and Mauricio Macri, the current Mayor of Buenos Aires, which is running to the right of Scioli, with about 30% of the vote. The rest of the votes are spread among many candidates, so it is likely we will have a second election between these two candidates, and I can’t predict who will win then.
Scioli was the Vice President during President Nestor Kirchner’s term in office, so he is deeply involved with the current policies. Most likely there will be no change if he wins. In fact his Vice President is closely aligned to the current President Kirchner, who as a result will remain politically involved behind the scenes. So they will likely maintain very high government subsidies as well as the current central bank policies.
Macri is known as a more pro-business politician. He proposes a gradual adjustment to more market-oriented fiscal policies. He is very popular amongst his constituents, residents of Buenos Aires, winning two times with around 60% of the vote, and has done a good job at running the capital city, according to his voters.
It is hard to call the election. However, about 30% of Argentinians are in the lower income classes. This is a sure vote for the current government, who keeps on promising even more aid and subsidies. This is a big number – and of people who generally vote with their pockets. You know, education is still a problem in my country, where 7 out of 10 kids don’t finish high school. So with these dynamics it is hard to change course. But it could happen.
ET: Well another country that decidedly needs to change course is of course Greece. Which brings us to the key question: could Greece adopt Argentina’s currency model should they leave the Euro?
Both countries are structurally very different of course, with Argentina being a major exporter and natural resources producer, while Greece is largely an importer (albeit relatively strong in tourism). But there are some striking similarities: both have or had to cope with a gigantic amount of debt unlikely to be repaid; both have citizens who deeply mistrust their governments; the ownership of foreign cash in each country is very high (“foreign” in the case of Greece meaning Euros if the Drachma is adopted); both have sizeable parallel economies; and external creditors have proven to be very impatient. They even use the same colors in their flags! What’s your view on this?
MF: I think that if Greece were to leave the Euro things would get very complicated for them. First, they lack the actual capacity to print a new currency, as stated by their Finance Minister. But OK, this is a technicality.
More importantly, they would be going back to a much more devalued national currency, similar to Argentina where people mistrust the Peso and would likely want to store their savings in a much more credible currency like the Euro, which will still be widely used in neighboring countries. If the government were to do this, in my view this would be a bad decision and make it much more unlikely that they could repay their debts in any currency.
ET: Sure, but this also happened in Argentina and eventually they negotiated a big haircut…
MF: Yes, there was a big restructuring of the debt. This was the hallmark of the first Kirchner government, as well as his fight against foreign creditors. On the whole Argentina restructured something like 93% of its debts.
So Greece has no choice but to restructure its debts and adopt a more sustainable fiscal policy. We heard that they just asked for another €50 billion over the next three years, but this money will likely never be repaid – even less so if they were to leave the Euro. And what would they do with all the cash Euros still in circulation in their country?
ET: Presumably do the same thing as the Argentinian government did, take them away in exchange for an artificially inflated local currency.
MF: Yes, and this would create the same very unhealthy situation as we have in Argentina. Why? If people start storing value in a foreign currency, in this case Greeks using Euros, this will create a huge lack of transparency and affect normal trade flows and transactions. And we know that the parallel economy in Greece is already quite large the way it is. So imagine an exponential version of that. It would be a very difficult period for Greece.
And the last thing they need is a mass of tourists stripping away the assets of the country for very little. They need a strong currency that can keep its value.
ET: OK, but if they stay in the Euro it will not be easy for them either.
MF: That’s right but in my view Europe must agree to make concessions. Just imagine the fees they will start paying if the current IMF default is not resolved. So something must be done. Creditors need to manage their expectations. Greece must raise taxes, manage spending, basically implement all the policies prescribed by the IMF and Eurogroup, but the creditors also need to be flexible.
Both parties must make concessions in order to reach some type of a mutually beneficial agreement. And so far we haven’t seen that.
ET: Miguel, thank you very much for your thoughts.
MF: Thank you. All the best.
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They are all the SAME model at their base. FIAT fractional reserve fakery. Just like we have here with the Fed. There was a little case nobody has heard of now that threatened to expose the fraud of the entire system. So it had to be terminated, with extreme prejudice ...as they say. lol, http://www.thetruthaboutthelaw.com/banks-lend-money-they-create-out-of-t...
As I recall Argentina was asset stipped by the banks as well through privitization.
Argentina is no model.
Here is a better proposal:
http://goldsurvivalguide.co.nz/letter-alexis-tsipras-hugo-salinas-price/
A better solution still is to simply use silver money for daily transactions and gold for savings.
It's coming.
~"So once it realized that its citizens were trying to find other alternatives, the government took steps to also prohibit domestic transactions involving physical gold."~
I can think of few things more reprehensible than a government banning its people from holding and transacting in precious metals. It is the true sign of moral collapse.
Yessss. " unhealthy" means the asset stripping central banks actually have to get their grubby paws dirty.
It's why Argentinian presidents has her hands full all the time with rumors, scandal and intrigue surrounding her.
"The Argentine central bank is following a very expansionary policy. They print money to promote consumption. There are subsidies for everything: public transportation, electricity, gas, airfares, train fares and the like.
And why? We have a populist government, which has been known to misreport the official statistics. They even stopped publishing the poverty indicators in Argentina. Imagine that. So we no longer know how many poor people there are. They even misreported the inflation rate, claiming it was about 10% per annum up until a year ago or so.
In October Argentina will have Presidential elections. It is hard to call the election. However, about 30% of Argentinians are in the lower income classes. This is a sure vote for the current government, who keeps on promising even more aid and subsidies. This is a big number – and of people who generally vote with their pockets."
Over the weekend, Hillary Clinton promised even more "free" shit for the FSA in exchange for their votes.
Argentina is no different than the U.S. with all the money printing by the FED and corrupt politicians pandering to the FSA?
I personally really really don't get it. Greece was a basket case before the EU, during the EU and will be forever. Greece will never repay this debt but in the mean time the banksters will put the screws to the people via force measures and the assets of the country rolled into the EuroBankster portfolio. The future will not be exactly what anyone predicts. The coming shitstorm will reshuffle the deck over the next decade. I just think Greece should have defaulted, not paid shit and go their own miseable way having a deathroll chance in a reshuffled future. Continuing in the Euro will gurantee that Greece will always be poor as long as there is a Euro. In short making a deal will kick the can but the can will never get lighter, NEVER!
I would have done 4 years what the Greeks voted on, fuck the banksters and roll the dice with something else. All the young who can leave will leave Greece even more than now. The birthplace of a ancient practice called democracy is toast. When the last Greek teenager has left the country will attempt to restaff by importing their Muslim neighbors to create taxpayers..why? because it a broken record, every european country that commits suicide commits double hari kari by brinking the great mentally unwashed and then you get permanent stink that just won't go away.
Yes, Argentina has been poor and indebted for decades now, So it is an accurate model for Greece.
Argentine is completley independent on raw material from the rest of the world (self sufficency). Greece can't even feed it's population and don't talk about energy.
Sounds like another soon-to-be third world country...
http://www.theatlantic.com/international/archive/2013/05/nearly-a-quarte...
Look at Greeces northern neighbours Macedonia and Albania and you see two and a half world countries (and then Kosovo, still under international perfusion).
It's absolutely not. Energy for example, has been draining the Central Bank reserves, because the economic policies of the Kirchners destroyed the energy autonomy Argentina once had (oh, do I need to remember you all that Néstor Kirchner was fundamental in privatizing YPF during the 90's, and once they had a burning potato in their hands they decided to re-nationalize it -during the K years- by printing bonds at astronomical rates which Cristina called "pieces of paper" - of course, it'll be paid not by her tenure but by the sorry ass that follows her). And Argentina relies on imports for its industry too. So, well, no.
And then there is this 1907 description:
Modern Argentina, the El Dorado of To-day: With Notes on Uruguay and Chile William Henry Koebel - January 1, 1907 F. Griffiths - PublisherJust want to say that Zerohedge is posting some great material on Greece and the eurozone. Keep it up!
oh lets hope not...
http://www.globalresearch.ca/argentina-a-case-study-of-israels-zionist-w...
Greece looks fine to me.
They can print a trillion suro's and pay off their entire debt tomorrow if they wanted to.
The entirety of Europe looks like Argentina...only without oil or copper.
Nobody cares about "Argentinian soybeans" save for maybe Argentina.
If the euro collapses they might want to restore convertibility to the dollar.
The alternative might be air strikes actually....
Seems like a bogus rationalization. MSM type thinking, within the box.
There is nothing wrong with a country that has competing currencies and a weak government.
That's my observation as well. It's like telling children about the bogeyman. Don't do that or he'll git 'cha! WOOOOoooooOOOOO!!! Spooky.
Amazing how irrationally afraid people are of bankers' threats.
Ummmmmmm..... OK. That was a lot to take in. Not sure what the right comment would be, but how about this:
TRY IT AND SEE, Greece. You're dead in the water right now and you've sold yourselves into slavery. This is a moment without hope. SO TRY SOMETHING DIFFERENT.
Will it be messy? Yup. But my personal experience is almost exclusively in messy and I've found it's rarely fatal. You will find your way because you will have no other choice. You may make some new friends along the way. People who will be useful to you- not those douchebags in Brussels. Worst case, nobody is going to starve to death. The US won't visage that happening to you even if the rest of Europe will.
You've ALREADY FALLEN. The fear-mongering bankers have you peeing down your leg that awful, Biblical things are going to happen to you if your leave their grasp. But you're already laying on the ground. I mean look around you. There's no further left to fall. SO GET THE FUCK UP ALREADY.
But you miss the point that they DON'T WANT to get up themselves. They want OTHERS to HELP THEM UP.
you would have sold it to me had i not known that 30 years of common EU agricultural policy has left us in no easy place to build sth from the ground up. Dependency is a demotivator to drastic changes, especially if it's your neck or worst your family's neck on the line.So it is not that "nobody is going to starve to death".Hell ,we ve had people dying in the winter from trying to warm up with handmade stoves because the heating cost rose so much after retaxing it.From a rarity newsfeed it became sth common enough not to bat an eye.I am not saying you are wrong.
Just that 1-some things need planning not knee-jerk reactions 2-the battle is way more easily commanded as far away from the ground as possible
Socialism..is what does not work..no pun intented
Same old banker story, if you don't accept our offer. We will place trade sanctions on your country. If you decide to circumvent the US dollar for trade exchanges, we will remove your leader and install a US banking puppet.
The real global terrorist are in broad daylight.
Homestead grants to small businesses would help both nations.
The world needs more farmers.
It wouldn't work without a fairy tale sovereignty claim. The Greeks would have to cliam back Constantinoble stating that it was usurped by the Ottoman Turks in 1453 just like Argentina and its Malvinas fairy tale:
https://www.academia.edu/10490336/Argentinas_Illegitimate_Sovereignty_Claims
"just like Argentina and its Malvinas fairy tale:"
Argentina's Claim Over the Islas Malvinas (aka Falkland Islands) Is Legitimate
U.K. should also do the right thing and return Ulster to the Republic of Ireland and compensate Boers for the genocide it commited on their population using concentration/death camps. Germans did it for the Jewish survivors why the British government has been exempted so far?
Sorry, Argentina's mythical Malvinas claim is a fairy tale:
https://www.academia.edu/10490336/Argentinas_Illegitimate_Sovereignty_Claims
https://www.academia.edu/12231343/Argentinas_Illegitimate_Sovereignty_Claims_Part_II
https://www.academia.edu/10573354/UNGA_2065_XX_Question_of_The_Falkland_Islands_16_Dec_1965
Oh no. Not a choripanero, please don't. Ámbito Financiero is a mouthpiece of the Government. And what this asshole doesn't say is that the measures taken to ensure the post 2001 rebound where mainly taken by fucking Duhalde. All the politically impalatable ones. Néstor only got the cherry on the pie. And about Central Bank independence, this asshole didn't say what it actually meant: Central Bank modified it's charter which forced it to have a relation between reserves and currency "on the street", so they could print their way out of any fiscal deficit. Which meant double digit inflation for a long long time (reached 40% in 2014). Never, ever, believe a fucking choripanero like this asshole.
That's why he didn't mention that Argentina defaulted AGAIN in 2014
Argentina didn't default. They refused to pay on bonds they contend were illegally contracted by a previous administration-something the Greeks are threatening to do as well.
No, they didn't appeal to the "odious debt" principle, at least not while they reprogrammed their debt payments with all other creditors. The thing is that a small number of them didn't accept the terms. The govt. didn't want to negotiate with them and then they ceased payments. Technical default.
Refuse to pay = DEFAULT
I don't think you read the interview AT ALL... This guy is saying that the Argentine Central Bank is not independent and thus created the 2 digits inflation you talk about. He even shows a graph about the aggressive inflation in ARG. Also he says that they have been printing money to pay for public spending and subsidies, killing economic growth. If you would have read the whole piece you would have realized that he took a stand against Kirchner policies.
Funny that the article doesn't mention that Argentina defaulted AGAIN in 2014
I guess their money printing didn't work out as well as they claim.
You are so wrong... That was the exactly same assumption the vulture funds had, but, interestingly, Argentina DID pay the us$600 million in time, it was Judge Griesa who inmobilized the funds... Legally you default when you REFUSE to pay (wich Argentina didn't) the money was there to take. Kicillof outsmarted the guys at Orange Street...
I was in Argentina a couple of months ago. It's amazing the popularity the gov has given the extreme financial repression. The blue market exchange rate has been pretty stable for quite a while but even at that rate I didn't find things so incredibly cheap. Plus selection was lousy. I left by bus and crossed the border into Bolivia which has a very vibrant small business economy despite having a socialist government. Somehow Bolivia has managed a very stable currency without repressing small business. Particularly frustrating to some Argentinos is the inability to leave on vacation with any money. Basically the limit is so low they can't even bother going so they just take local vacations. Not too bad though cause the country is beautiful.
"And the last thing they need is a mass of tourists stripping away the assets of the country for very little. They need a strong currency that can keep its value."
But this is the whole point.
If the government spends beyond the means of its tax-base something has to give...and that something is the value of the currency.
Everything in the country is denominated in the Currency. The currency is the monetary measuring unit. So, some portion of that is what is needed to pay the costs of doing business. If you have a cab, for instance, you have to be able to buy fuel, and maintain the cab, and make enough for the driver that he will drive instead of going into some other trade...or the business collapses. And then there is the amount above costs that the business makes, tips from happy customers, etc. These might pay for a few luxuries, maybe 5% or 10% extra.
Then enter government. The government tells you that they can give you free services worth 20% of your income, healthcare for instance, and all they want in return is that extra 5% or 10% you made.
The common man looks and says, The State will give me $20 of stuff for $10 in taxes! What a great deal...and they can't get enough of it.
But what the government is actually doing, is taking the $5 or $10 and putting it in their pockets, then borrowing $30. They'll pay the healthcare provider $25 for the $20 worth of health care - to keep them happy. And they'll pay the last $5 to their cronies in return for nothing.
This will go on until no one will loan them any more money. Then they devalue, if they can.
The cab driver is still making $100. But because there is more money due to devaluation... Groceries and housing cost more now - everything costs more. So now he doesn't have that extra $5 or $10 to give the government...but they'll throw him in jail if he doesn't. So, declares that the capitalists are bleeding him for grocery and rent money. The Bastards!!
So, government offers him public housing worth as much as his current housing...but at half the cost, but they need his support against those mean business people who are scalping him...and another $5 in taxes against the 'rich'.
Then government takes the $5 from 'the rich' and uses it to secure more $15 in loans...gives $5 to a crony who builds tenements. The place is supposed to look like a $10 place, but cost like a $5 place. The Politician keeps $5 and he gives $5 in free stuff to the public, to buy more votes.
The crony knows this is a payoff...so he builds the place to look right, but he also knows he will never be checked - because it is a political payoff. So, he wants the building to look right, but he builds it as cheaply as he can get away with. He doesn't care if it collapses two years from now, as long as it looks right on opening day.
Mr Cabbie moves in and everything seems great...for a little while. Then the plumbing starts leaking from his upstairs neighbor's... and part of his ceiling caves in. It's a big scandal...but times are tough, and there's not enough money to fix the public housing.
Mr Cabbie, doesn't have enough coming in to cover his costs. He has started getting groceries by carrying miscellaneous items to and from the farmer's markets along his fare routes...but it cuts into his gas budget, and customer reputation because he has to go to the market between fare's or convince a fare that the fastest route goes through the market, and then make up a reason to stop.
But Mr Politician says the problem is the evil capitalist building suppliers who sold sub-standard materials! If he can he also blames the makers of construction equipment...for making the machinery too expensive to be used the way it should be used. The creditors are coming after the country. And it is looking like there will be problems. So, he devalues again so the country can buy building materials...which, as luck would have it, a friend of his deals in.
The friend gets $10 to pay for $5-worth of repair materials...because this is a payoff. He pockets the extra $5. Of course...this new money entering the economy drives up prices...so soon the materials will cost $10 anyway.
Mr Politician's other friend, Mr Builder, also gets $10...to do $5 worth of work...because this is a payoff. So, he does the work, knowing that the extra money he got from Mr Politician is going to drive up prices....and of course, he still knows that the work doesn't have to be done right...it only has to look right for a short time. So he cuts corners.
Mr Cabbie gets his government housing fixed. But prices keep going up and up. His fares don't cover his expenses anymore. The cab is wearing out. And the cost of a new vehicle is astronomical in local currency. He doesn't have the income to pay for it, or even to get a loan for it.
In steps Mr Politician...who says he'll give Mr Cabbie a job as a public transit driver with a higher salary, than he used to make driving his cab! But to pay for it..he needs to get Mr Cabbie's support in doing another devaluation of 20% - $20 out of $100. Of course, Mr Cabbie goes along with his bestest pal Mr Politician, who really cares about the little people.
Mr Politician gives $5 to his friend Mr Builder, to build a public transit center that only ought to cost $3. Mr Builder understands this is a payoff.
Mr Politician gives $5 to his friend Mr Materials for $3 of materials...Mr Materials understands this is a payoff.
Mr Politician then prints an extra $10 to give to himself.
For Mr. Cabbie...everything is alright for a while as a bus driver... But soon prices go up. And while he makes more than he did as a cabbie...now he still can't afford to pay for his expenses. But...at least he won't have to suffer long.
His friend Mr. Politician, says he is going to take the country into a trade group. They've really made their economy so efficient, what with public housing, public transportation, and all, that they can get rid of their old currency, join the trade pact, and then give Mr Cabbie a raise to meet his cost of living again.
Mr Cabbie is all for it.
So Mr. Politician does a little create work on the books...plus gives Mr. InternationalBanker a generous 'gift' to fix his books...and they are in!
Mr Cabbie gets his raise and can meet expenses again....for a while...but imports are getting harder and harder to get. And when Mr Cabbie sold his cab, the farmers market went out of business, because they couldn't get transport.
Mr Politician has a plan.
He will borrow money..what with his new trade pact... his friend Mr InternationalBanker would be happy to lend them 30 Euros...to do 20 Euro's worth of work...because Mr Politician knows this is a payoff, and that Mr InternationalBanker is just a friendly guy who wants everyone to be under one set of rules...his rules.
So Mr Politician pockets the extra 10 Euros...and gives Mr Cabbie a raise, Mr Builder a raise, Mr Materials a raise, etc, etc...
And everything is fine for a while...except to make the next payroll he has to borrow even more. And every time he borrows more, prices go up...because there is more currency chasing the same amount of goods.
Until one day no one will loan him the money except Mr InternationalBanker who smiles and says, "I'll give you a bailout, but I want to own part of your country, people and all."
QUESTION:
Who in this story is not a theif?
ANSWER:
No one. Everyone wanted Mr Politician to rob someone else and give them a share of the loot. If they were honest people, they'd have never seen Mr. InternationalBanker, or learned what he really did.
Anyone who thinks hyperinflation is impossible in the US should read this article carefully. If the government lets prices rise, then prices are contained by lack of spending power (a bit like now). The problem comes when the government starts to meddle in prices and especially when the government starts to handle out subsides to 'the poor' to pay for things that cost more. Here 'poor' - we will give you 20% more so you can buy widgets. Guess what - widget prices jump 20%!