Editor’s Note: Argentina is teetering on the edge of a crisis. Its currency is in free fall… inflation is skyrocketing… and foreign investors are fleeing the country.
The Argentine government has already taken emergency measures. But will they work or backfire? If anyone has an answer, it’s Doug Casey.
Casey Daily Dispatch editor Justin Spittler recently interviewed Doug to get his thoughts on the impending crisis in Argentina… and we knew International Man readers would be anxious to hear his thoughts…
Justin: Doug, what do you make of what’s happening in Argentina? Is the government taking the right steps to prevent a crisis?
Doug: Let me start by saying that no government should be in the money business. Money is something that society should determine for itself. In today’s world, it would probably be gold, some type of cryptocurrency, or some combination of the two. Remember that, before about 1933 in most cases, all the world’s currencies—the pound, the mark, the franc, the dollar, all of them—were just national names for a specific amount of gold. Then governments withdrew gold coins from circulation, and would no longer redeem their currencies with anything. But people continued to use them—even though they started dropping radically in value.
This is especially true about Argentina, which has about the worst track record of any government. They’ve completely destroyed numerous currencies since they went off the gold standard in the 1930s. They’re neck and neck with Brazil for creating tens of trillions of percent of inflation over the last 80 years. Repeatedly wiping out their lower and middle classes in the process.
But back to your question. Argentina’s central bank has just raised its key rate to 40%. And people are saying, “Oh, this is horrible, this is terrible. It’s going to destroy the economy. Nobody’s going to be able to borrow anything. It’ll bankrupt businesses that need to borrow.”
Justin: Do you think the IMF will impose austerity measures on Argentina? And if so, should Argentina be cutting spending right now?
Doug: Argentina should fire many, many more government employees. Macri has already gotten rid of about 80,000 of them. But that’s a drop in the bucket.
They should, for instance, sell the national airline. It’s the only major airline in the world, that I know of, that loses money. Every other airline is coining money right now. Aerolineas loses about a billion dollars per year. That’s mainly because of the unions.
Unions basically run Argentina. They’re everywhere. And they treat their members like gods at the expense of the public.
They’ve got to destroy the union movement down here. It’s totally corrupt. They would put the Teamsters in the United States to shame on their worst day. Unions everywhere are basically run by thugs. But, as in the US and Europe, the average guy has been programmed to believe unions are good, and protect the downtrodden worker from employers, who are evil.
Unions don’t have to be abolished. They simply shouldn’t be protected by the State. If unions were voluntary, no problem. But they’re not. Membership is almost always compulsory, everywhere. They put a straightjacket on the working man, and damage society as a whole.
Unions are just part of the problem. They also need to get rid of their price controls, their subsidies, their duties, their taxes, and their regulations. Argentina, however, is probably no worse than France, Italy, or other EU countries. They’re all a nightmare for the entrepreneur.
Justin: So, Macri hasn’t done enough yet?
Doug: Macri has done some good things. But he’s not moving nearly fast enough.
I’ve got to say that the best thing that’s happened to any country in South America in the last 50 years was Augusto Pinochet in Chile. However, he’s a good news/bad news situation. The fact that Pinochet was a military dictator. That’s bad news.
But—strange for a general—he had good economic instincts. That’s the good news. Before him, Chile was just a poor, isolated mining province. He took Chile from a backwater with some copper mines to the most successful country in Latin America. Now, everything works there. The average Chilean is, believe it or not, wealthier than the average American. One reason for that is their national Social Security funds are individually owned accounts, invested in their stock market. Argentina needs something like Pinochet.
Everybody says, “Oh, Pinochet, he killed a couple thousand people.” Yeah, he did. And that’s too bad, even though they were mostly communists. But you’ve got to remember that the Argentine generals killed 30,000 or 40,000 people. The Brazilian generals probably killed another 20,000 or 30,000 people. Even the Uruguayan generals killed a couple thousand people. And that’s Uruguay, which used to be called the Switzerland of South America.
Pinochet was mild by South American standards. The only reason that he was pilloried, brought to trial, and hated so much, is because he put economic reforms into effect. It wasn’t because he killed a couple thousand people. It’s because he was pro-capitalist. That’s why he was persecuted.
That’s the direction Argentina should go. The country is still following the model Mussolini set for Italy in the ’20s. Hopefully, they can accomplish this without killing anybody.
Justin: So, are you still optimistic about Argentina? I ask because you recently told me that Argentina was one of the only countries in the world headed in the right direction. Do you still think that, given what’s happened recently?
Doug: Yes. They’re absolutely moving in the right direction. But, like I said, they’re doing one smart thing followed by one stupid thing. Two steps forward, one step back. But that’s better than doing one stupid thing after another. The previous government, under Cristina Kirchner, did something unbelievably stupid every single week—nothing intelligent, ever. If she’d been re-elected, Argentina would have moved in the direction of Venezuela, or at least Bolivia.
But let me say this. The average voter, anywhere in the world, has no philosophical bearing whatsoever. Look at New Zealand. By the mid-1980s, the country had become the shallow end of the gene pool. Anybody with any sense and enough money to buy a ticket to Sydney, London, or LA was getting out.
Then, Roger Douglas, a reformed socialist, started deregulating the economy, cutting taxes, and privatizing. The place boomed. It became an extremely prosperous country in the ’90s, ’00s, and early teens. Everybody started doing well. The currency got strong, it doubled against the US dollar. Real estate prices tripled and quadrupled.
But what did the stupid Kiwi voters do after 30 years of good times? They elect a 37-year-old female, who’s a hardcore communist. Now New Zealand’s going downhill rapidly.
And as corrupted as the average Argentine voter has become over the last 70 years, I don’t know if they can handle four years of a good thing. That may be too much to bear. So, they might elect someone even worse than Cristina after Macri. It’s unpredictable.
But we really shouldn’t be worried about what happens with Argentina. Instead, we should be worried about what comes after Trump. Because the chances are excellent that we’ll be deep in stage two of The Greater Depression by then. Perhaps we’ll also be in something resembling World War III. The next president of the United States is likely to be extremely dangerous.
Justin: So, I don’t take it that you’re buying Argentina’s 100-year bonds.
Doug: Of course. They’re a monument to human stupidity. $2.3 billion of them, 8% coupon, in US dollars. The idea that anyone would lend any government money for 100 years, let alone the Argentine government, is crazy. It’s completely insane. You won’t have to wait 100 years for them to be worth zero. They’re now trading at around $86.75.
These bonds were sold as a speculative vehicle. They were a bet on lower interest rates, an improving Argentine economy, and the ability to repay the bonds getting better over the short run.
The fools that bought them will probably consider playing Russian roulette with an automatic pistol in the near future as well.
The fact that these things even exist shows you how loose credit has become. It’s telling us how much funny money has been created. Next thing you know, Zimbabwe will be able to float a 100-year bond…
Justin: You can’t rule it out. Anything is possible these days.
So, what should the average Argentine be doing right now to protect themselves?
Doug: They should be buying precious metals. This used to be very easy to do in Argentina. But the Kirchners shut down the local gold exchange. This made it harder and more expensive to buy gold coins. I don’t know if Macri has plans to allow it to start up again. It would be a good idea.
Argentines should also buy property, specifically farmland. Commodity prices are still very low. Farmers aren’t making any money—but commodity prices have been perking up. Buying farmland is an excellent bet right now.
You could also speculate in cryptocurrencies. I know a lot of Argentines that have done this. They were early adopters. They got involved in the space because you can’t save pesos, and it was inconvenient to save dollars. So they saved Bitcoins. And they made a lot of money.
Of course, Bitcoin’s up an enormous amount over the last few years. But there are waves of new cryptocurrencies coming out. So, there’s still a lot of profit opportunity.
Those would be my three recommendations for an Argentine.
Justin: Yeah, those are all better ideas than shifting wealth from pesos to currencies like the US dollar and British pound. After all, you and I both know that every paper currency on the planet is losing value. So, you just end up playing a game of hot potato.
Doug: Absolutely. All of them.