Editor’s Note: As you know, Bill believes the U.S. is about to experience a violent monetary shock. So today, we’re sharing with you a classic from the archives. It’s Bill’s firsthand account of Argentina’s monetary crisis. But as an American, you may eventually experience a very similar situation …

 

Cash Only

One of the things that vexes just about everyone in Argentina is money. The value of the peso changes rapidly. There is the official rate. And there is the unofficial rate.

Nobody knows what a peso is worth. Many people – including your humble editor – have to do some pretty serious calculating. The parts of his brain that do math must be swelling from overexertion.

 

cash_only_inline

 

“We need gas for the truck,” said Elizabeth yesterday.

“Well, I don’t have any more peso cash. Let’s put it on a credit card.”

“They don’t take credit cards. Cash only.”

“Then let’s pay with dollars.”

“Don’t be silly. That would cost us 50% more. He won’t give us a good rate.”

“Then let’s get some pesos at the ATM.”

“That’s just as bad … we’ll get the official rate.”

Let’s see: We want to pay in pesos, but only if we get the pesos at the unofficial rate. Otherwise, it’s better to pay in dollars, but only if the person on the other side will take the dollars at the “blue” or free-market rate.

Usually, you end up somewhere in between. If you try to bring money into the country, the government insists you trade it on the official market. But you can still work out trades at the “blue” rate – either by bringing physical cash into the country or by working with an unofficial money changer.

The money changers buy bonds for you in Miami. Then they sell the bonds in Buenos Aires. The market for the bonds should be about the same in both cities. The money changer is happy to have his dollars. You are happy to have pesos that you can spend – or in our case, pay our farmhands and farm expenses

 

Evoluci+¦n del d+¦larThe official and black market rates of the Argentine peso. Prior to the 2001 crisis, the peso traded at 1:1 to the US dollar, to which it was tied via a currency board. It was realized far too late that a domestic fractionally reserved banking system and a currency board operating concurrently could mean trouble…credit expansion closely followed capital inflows, which funded the government’s burgeoning debt – via dolarblue.net – click to enlarge.

 

Half-Mad Money

It is always a pleasure to visit Argentina. It is a country where economic disaster stories are daily life… where economists’ daffy theories are government policy… and where everyday citizens have to figure out how to deal with a monetary system that is half-mad… and half merely incompetent.

When we are here, we need to spend pesos… especially out in the country, where people’s math skills are not as well developed as they are in Buenos Aires. But any serious purchase – say, if you’re buying an apartment – requires dollars… either on top of the table or underneath it. So you have to be prepared.

Most people want dollars. But they can’t take them. Because the Argentine feds will ask a lot of questions. If a merchant takes dollars at the unofficial rate, the feds will give him a hard time. That leaves buyers and sellers of dollars getting together in dark “caves.” Dow Jones reports:

“Argentina’s foreign-exchange market is going underground. As the government restricts access to foreign currencies, Argentines seeking hard-to-get dollars have been pushed into cuevas, or caves – clandestine operations where customers pay dearly to exchange pesos for greenbacks.”

Buying dollars for savings is banned, and authorities make only small amounts of foreign currency available for travel abroad. Travelers must submit an online request to the national tax authority just days before leaving, and they usually receive approval for much less than they requested.

 

cristina_fernandez__kirchner_775525The Kirchner-Fernandez vacuum

Cartoon by Dragan

 

Businesses need government approval to import equipment and materials at the cheap official exchange rate. The national tax agency has even posted dollar-sniffing dogs at border crossings to catch those traveling with undeclared currency.

A visit to Argentina is like getting a PhD in monetary catastrophe and economic mismanagement. It reminds us how politicians can really make a mess of an economy when they put their minds to it.

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • America Goes Full Imbecile
      Credit has a wicked way of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.   Let us not forget about this important skill...  [PT]   Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up...
  • Retail Capitulation – Precious Metals Supply and Demand
      Small Crowds, Shrinking Premiums The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?   Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark...
  • Credit Spreads: Polly is Twitching Again - in Europe
      Junk Bond Spread Breakout The famous dead parrot is coming back to life... in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” - mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while...
  • Gold Divergences Emerge
      Bad Hair Day Produces Positive Divergences On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week's time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  - and China's mandarins replied: just you wait, we...
  • Industrial Commodities vs. Gold - Precious Metals Supply and Demand
      Oil is Different Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?   Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a...
  • Chasing the Wind
      Futility with Purpose Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.   Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally....
  • Lift-Off Not (Yet) - Precious Metals Supply and Demand
      Wrong-Way Event Last week we said something that turned out to be prescient:   This is not an environment for a Lift Off Event.   An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]   The price of gold didn’t move much Mon-Thu last week, though the price of silver did seem to be blasting off. Then on Friday, it reversed hard. We will provide a forensic...
  • Cryptocurrency Technicals – Navigating the Bear Market
      A Purely Technical Market Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing...
  • The Fed's “Inflation Target” is Impoverishing American Workers
      Redefined Terms and Absurd Targets At one time, the Federal Reserve's sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.   Fed Chair Jerome Powell apparently does not see the pernicious effects...
  • Merger Mania and the Kings of Debt
      Another Early Warning Siren Goes Off Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com