Time to Sell America and Buy Argentina?
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- Published on Monday, 01 October 2012 14:02
- Written by Bill Bonner, Founder and President, Agora Inc.
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We're at our ranch in the Andes, continuing our financial tour of the future.
What have we learned so far?
It might be too early to sell America and buy Argentina. But we'd keep an eye on the trade.
Brazil and Argentina both have lived through high rates of inflation (more than 1,000% per year). The U.S., Japan and Britain are headed in that direction.
Yesterday, on the streets of Salta, we saw an engaging sight. A group of girls were dancing in unison down the streets to the sound of loud music. They wore short skirts and elaborate headgear. They might have been drum majorettes, except their outfits were carefully embroidered and looked so stiff that the girls' movements were restrained.
They were dark skinned with round faces. Attractive people.
"They're Bolivians," explained a friend.
"What are they doing?"
"It must be an important saint's day."
Following the girls was a group of about 20 men. They too were dancing along. There was not much movement to the dance. Just to one side and then to the other, following the music.
They might have been Shriners or Knights of Pythias in a small-town parade. But the effect was very different. You imagined yourself watching an Inca ritual. These men were big. They wore brown shirts and brown ties, often stretched over large stomachs. And they had huge headdresses made of yellow plumes.
Then came the older ladies. About a dozen of them. We don't remember their getups... except that they were fancy and colorful like the others. What stood out was the girth of these women. They were all very round. Almost as round as they were tall. They turned around in circles as they danced, which made them look like spinning tops.
Crowds gathered along the streets to watch them pass. Even the locals seemed not to know what to make of them. Then, after about five minutes, they were gone.
Bolivia is a champion in the Inflation Olympics too. Between 1983 and 1985, prices rose by 23,000%. Is that a record? Nah, not even close. But it's still impressive.
Brazil's consumer prices rose 14.2 quadrillion percent between 1961 and 2006. And consumer price inflation in Zimbabwe is probably incalculable; it got so bad there were no consumer items for sale!
Here in Argentina, prices rose 12,000% in 1989, which is impressive, but certainly not record setting.
We're All Becoming Argentine
Who cares?
Well, we bring it up only because we're here in South America on a tour of the future. Yes, dear reader, we are peering into not what is, but what is to be. At least, we think we are.
And what better place to do it than in Argentina?
Is there any economic policy so dumb the Argentines haven't tried it -- more than once?
We doubt it.
In fact, we are thinking about beginning a new publication: Financial Advice From an Argentine: What We Don't Know About Financial Catastrophe Isn't Worth Knowing.
Yes, dear reader, we are all becoming Argentine.
Now the U.S. government interferes everywhere. Our central bank uses tricks and subterfuges. Our peso... oops, we mean, our dollar... is subject to devaluation without notice.
We may renege on our debts (as Richard Nixon did in 1971... telling foreign holders of U.S. dollars that they could forget about redeeming their paper money for gold at the fixed, statutory rate). Or we may just inflate them away.
And that's where it will get really exciting... as it was here in South America in the 1980s.
Watch the Skies
How will it come about?
Well, first you'll hear responsible people claiming that printing extra money is not so bad. Then you'll see people calling for the feds to actually drop money out of helicopters.
Get ready for it. Watch the skies. We're not kidding.
Of course, the idea was always fanciful. No serious economist ever suggested that we really should drop money from helicopters. But that doesn't stop un-serious economists -- and serious dumbkins -- from wanting to do it.
A large number of people believe that the problem with the economy today is a lack of demand. You hear Krugman, Stiglitz and Summers say so regularly. They have backed efforts to increase demand by increasing government spending and lowering the price of borrowing -- that is, by fiscal and monetary stimulus measures.
Learning and Unlearning
But those measures haven't worked. Instead, they've just enriched the bankers and bondholders. So why not just bypass the banks? Why not just give money -- extra demand -- directly to the people?
Here's an article that ran last week in USA Today:
Federal Reserve Chairman Ben Bernanke earned the nickname of "Helicopter Ben" after suggesting that the Fed could employ the equivalent of Nobel Prize-winning economist Milton Friedman's humorous suggestion that money could simply be dropped onto the population from helicopters in order to prevent deflation. Give people some free money and they will spend it, boosting demand and the price level.
This was an amusing metaphor, not meant to be taken literally, but conceptually the Fed is able to create money out of thin air and give it to people. Bernanke's version of the "helicopter drop" involved paying for tax cuts with free money from the Fed.
Alternatively, the Fed could finance increased government spending on such things as infrastructure and education, leading to more construction workers and teachers being hired without any need to increase borrowing or taxes...
The only potential risk of this is increased inflation, though higher inflation is a potential consequence of any expansionary monetary policy, and the Fed has demonstrated its ability to reduce inflation when necessary.
In any case, an additional bit of inflation would be welcome right now, as it would reduce the real values of fixed-rate mortgages and help to decrease the number of "underwater" borrowers.
It's just a matter of time...
Brazil, Argentina and Bolivia have already had their hyperinflation experiences.
The U.S., Japan and Britain are getting ready for their own.
One learns. One unlearns. That's how it works. The world turns.
And at least one Argentine economist thinks the world is turning in this direction. Bad policies caused Argentina a half-century of backsliding and poverty. He thinks Argentines are getting fed up. He hopes they will mend their ways and use the next 50 years catching up to the U.S.
"The sun is shining bright on Argentina," writes Xavier P. Romer. "We simply need to open the blinds."
He may not have to worry about catching up. The U.S. may come to the Pampas before Argentina comes to the Great Plains.
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