How America Goes the Way of Argentina
BERLIN – Berlin is not a particularly attractive city – at least, not from our hotel room near the famous avenue, Unter den Linden. The buildings are all monumental, graceless, and blockish.
For years, the city has attracted young people from all over. It has some of the cheapest apartments in Europe and a lively, bohemian art scene.
It also has a generous social welfare system that makes it easy to live here with relatively little money.
Maybe that’s why there are so many immigrants… Driving downtown, it looked like nearly half the people we saw on the streets were from east of Byzantium. Dark hair, dark skin, scarves covering their hair – these were not the blonds we think of from the old documentaries on the Hitler Youth!
But the world has changed a lot since jack-booted troops marched through the Brandenburg Gate. And as much as we moan about Fed policy and the Washington circus… at least today, the mass killings and World Wars of the 20th century are no more. What killing that does take place is on a fairly small scale and in fairly remote places.
Things go in cycles. Booms are followed by busts… periods of peace are followed by violence… and every day of life brings us closer to the end of it, with all the world aging and drooping unto death.
There, we got that out of the way…
Now, we can turn our attention to the great show taking place right before our eyes – the markets, politics, extraordinary popular delusions, and the madness of crowds.
Last week, we were enjoying the spectacle from the cordillera of the Andes.
Argentina is a great country… always full of surprises, twists, turns, claptrap, and razzle-dazzle.
“We go broke about once every 10 years,” explained a lawyer friend. “The politicians do just what you expect in a sh*thole country. They borrow too much. They spend too much. They steal too much. And then, they go broke.”
The last 12 years – since we’ve been going there – has been a field day for corruption in Argentina.
Cristina Kirchner, the previous president, employed a driver to deliver envelopes of money to cronies, functionaries, and politicians. Alas, the driver kept a notebook of the transactions, which fell into the hands of prosecutors and led to a national scandal.
Billions of dollars were stolen – in bribes, padded contracts, and crooked deals of many different sorts. Much of it is now in foreign banks, from where the authorities will have a hard time getting it back.
“Nothing’s really new in that story,” reports our Argentine friend. “Except for the notebook, of course. You don’t usually have a record of who was paid off, with how much, and when.
“But more importantly, the government put up trade and capital controls; it spent too much money trying to keep voters in line. And, of course, it didn’t have the money, so it borrowed heavily from foreigners, in dollars.
“That’s what always seems to cause the crisis. We can’t print dollars. We can only print pesos. So when the crisis comes, the peso goes down and the dollar goes up… and everybody gets squeezed.
“But I guess the good thing is that we can’t really borrow too much… because lenders know we’ll default. We’re protected by our bad reputation.
“So Argentine families don’t have much debt. We don’t have houses being repossessed because people pay for them with cash. And people with money try to keep their savings in dollars.”
Right now, the dollar is king in Argentina. The peso has lost two-thirds of its value in the last 12 months. Eventually, prices will rise to keep up.
But that takes time. And in the meantime, the peso trades at nearly 40 to the dollar. You can buy a steak dinner with a bottle of wine for $15. A taxi ride to the airport is just $5. And “local” houses – but not the prestige properties, which are typically priced in dollars – are available for the equivalent of $50,000 or less.
“What is interesting to me is that now, I see the U.S. doing the same things. You know, tariffs, overspending, too much debt… even the kind of mob politics that the Peronists have done here for decades.
“I don’t know, but my guess is that what goes around, comes around… The U.S. is subject to the same economic laws as everyone else. And I guess it will have its reckoning someday.”
Can’t Print Time
Here at the Diary, that is our guess, too. Nature does not suffer fools gladly. She punishes them, though not necessarily on a regular schedule. And not necessarily as they anticipate.
People don’t get what they want in life… or what they expect; they get what they deserve. But like an old mill, nature grinds away – exceedingly fine and exceedingly relentless.
Over the last 30 years in the U.S., debt has increased three times faster than GDP. The debt is in dollars. And the U.S. can still print dollars to pay it back.
But we can’t print time. And debt, ultimately, must be paid in time, not just in money. And as interest rates go up, bonds fall… and more time is claimed. From Bloomberg:
“Bond investors have rarely seen losses like this over the past 40+ years,” Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, wrote in a blog post. “Any further moves higher in rates could lead to the worst year since 1976 in terms of overall bond returns.”
At today’s average wage, a man who owes $100 has already “spent” four hours of his future. If he owes $1,000… he has spent an entire workweek.
Today, the average working person has about $500,000 in debt with his name on it (including his share of government debt, but not including the government’s unfunded promises).
It will take him 500 workweeks – or 10 years of full-time employment (not including taxes) – to pay it off (assuming he devotes 100% of his earnings to it).
That is already a huge burden to put onto the future. Eventually, the future will shrug it off.
More to come.
Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies, and the author of the free daily e-mail The Daily Reckoning. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest. Since then, Agora has grown to include dozens of newsletters focusing on finance, health and travel. Since the early '90s Bill has vigorously expanded from Agora's home base in Baltimore, opening offices in London, Paris, Bonn, Waterford, Ireland and Johannesburg, South Africa.