How to Destroy an Economy

How to Destroy an Economy

PostBy: franco b On: Thu Sep 06, 2012 12:21 pm

The geniuses at work in Argentina. How our current situation will most probably play out also.
The signs are all there. The streets of Buenos Aires have recently seen the return of the backstreet currency exchange.

According to the official exchange rate, which is subject to capital controls, 4.4 pesos buys you a dollar. But on the street, people are happy to pay up to 6.7. Inflation runs at 25%. The purchasing power of an Argentine's peso savings is going down by one-quarter each year.

The government claims inflation is 9.9% and has outlawed calculating or quoting any other inflation rate. Forty percent of dollar deposits have been withdrawn from Argentina since last October. Now there are capital controls. You need special permission to move your dollars overseas.

To take a foreign vacation, Argentines have to apply to a bureaucrat for permission and explain where they got the money for the trip. And there are rumors that it will be made illegal to talk about the existence of the shadow market exchange rate for dollars.

But a lot of Argentines' dollars and pesos don't reside in bank accounts. Property transactions typically take place in special rooms in lawyers' offices, and they're cash deals. There's that much distrust of banks. They are fine for day-to-day things like paying your electric bill. Not for your savings, though.

And these transactions more often than not take place in dollars… If you pay in dollars, you could get 25% off the price of property. The government has outlawed this, making the buying and selling of real estate in dollars illegal. Just one more rule Argentines will find their way around.

By some reports, if an Argentine company complied with all the taxes and tariffs it faces, they would eat up more than the company's pretax profits. So the shadow economy thrives… by necessity, it seems, rather than greed to pay less tax. Middle-class day-trippers take the ferry to Uruguay to put their savings in deposit boxes. The rich spend millions on condos in Punta del Este, Uruguay.

For Argentines, real estate is their bank. They understand inflation and expropriation from bank and pension accounts. If they have some spare cash, they'll buy an apartment. Or a beach home across the Río de la Plata in Uruguay. Or a condo in Miami.

Now, fewer Argentines are using local real estate as a hedge against inflation. New construction and permit applications have fallen off a cliff. They just want their cash out.

The government claims that the rate of outflow has slowed. But with every passing week, companies and individuals figure out new ways to get their cash out. For instance, companies buy financial instruments locally in pesos that they immediately resell in New York for dollars.

Argentines have seen it all before. When a government and a banking system take your life's work with the stroke of a pen, you don't forget. If you're lucky enough to rebuild your savings, the next time you will be ready. And the harder the Argentine president, Cristina Kirchner, tries to keep assets in the country, the more they'll be siphoned out.

Meantime, Argentina is all but frozen out of international debt markets. The government hasn't reached a settlement with the group of creditors (known as the Paris Club) since its last default. So the country and the banking system desperately need these deposits to stay afloat.

But they continue to do incredibly dumb things. Two years ago, President Kirchner seized private pension accounts. Now she is going to lend $4.4 billion of this money, at a rate of one-tenth the inflation rate, to new home buyers. A lottery will decide who gets the loans – not capacity to repay.

Argentina has major competitive advantages in beef production. But land under beef farming is contracting. Beef producers face large and complicated export tariffs and are forced to sell cheaply to the domestic market. Many have moved operations to Uruguay or switched to soya.

It's one crackpot idea after another. And the cycle repeats. Expropriating your citizens' savings or international companies like YPF (a subsidiary of Spanish oil company Repsol), which President Kirchner nationalized last April, might buy you some time. But not much. The writing is on the wall.

In the last crisis, the trigger event was Argentina's massive default on its sovereign debt. This time around, Argentina doesn't face that scenario. Government spending has to be funded from printing presses, taxes, and expropriation of personal or company assets. It's hard to see how the government can collect more taxes. The printing presses are already causing the inflation and the rush to backstreet currency-exchange brokers. There's a limit to what you can expropriate.

This time around, the trigger event for a full-scale crisis will be the country running out of hard currency. There will be no money to pay for imports. Argentina can make do without more Porsches and Gucci handbags, but the country will grind to a halt if industry and energy-producers can't get their hands on crucial imports. The factories will shut.
franco b
 
Hand Fed Coal Stove: V ermont Castings 2310, Franco Belge 262
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Re: How to Destroy an Economy

PostBy: cokehead On: Thu Sep 06, 2012 4:13 pm

This reminds me of a story I was told.

I was into boats big time several years back. I spent a lot of time on the water. I noticed a forty foot catamaran pull into the harbor one day and it tied up to one of the guest moorings that the local yacht club maintained. At the time I was shopping for a catamaran and knew a fair amount about them. I took my dingy over, introduced myself and started taking about cats. (catamarans) I was invited aboard and talked to the new owner for quite a while.

He was from Maine but he was coming from the Caribbean; I forgot which island. He had purchased the boat their from a gentleman and his wife from South Africa. Turns out they where an older couple that had saved for their retirement but as history unfolded in South Africa they had a change in the government and the new government would not allow it's citizens to take THEIR money out of the country. They where watching the ravages of inflation destroy the buying power of their saving and were desperate to try and save what they could. They could spend the money within their own country though. That was permitted. What they did was buy the most expensive boat they could afford with the local currency in South Africa and then sailed it across the Atlantic and put it up for sale in US dollars. At the time I thought both the guy from Maine and the South Africans had guts. There was a lot of risk involved with an international deal of this type. At the time I thought nothing like what happened to the South Africans would ever happen here.

We as Americans are not immune for the law of economics. We are on a path to economic ruin but few people are willing to admit it. The reality is too painful. As Americans we have a false sense of security. I do my best to get people to look at our economic structure and it's fatal flaws but few will listen. Ignorance is bliss. Enjoy while you can.
cokehead
 
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Re: How to Destroy an Economy

PostBy: franco b On: Thu Sep 06, 2012 4:40 pm

Years ago a friend of my father had a similar problem. He had inherited money in Germany and Hitler's government would not let it leave the country. Instead he invested in art work which could be exported, especially those works the Nazi's considered decadent. He did very well in the end.
franco b
 
Hand Fed Coal Stove: V ermont Castings 2310, Franco Belge 262
Baseburners & Antiques: Glenwood Modern Oak 114
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Re: How to Destroy an Economy

PostBy: wsherrick On: Thu Sep 06, 2012 4:44 pm

cokehead wrote:This reminds me of a story I was told.

I was into boats big time several years back. I spent a lot of time on the water. I noticed a forty foot catamaran pull into the harbor one day and it tied up to one of the guest moorings that the local yacht club maintained. At the time I was shopping for a catamaran and knew a fair amount about them. I took my dingy over, introduced myself and started taking about cats. (catamarans) I was invited aboard and talked to the new owner for quite a while.

He was from Maine but he was coming from the Caribbean; I forgot which island. He had purchased the boat their from a gentleman and his wife from South Africa. Turns out they where an older couple that had saved for their retirement but as history unfolded in South Africa they had a change in the government and the new government would not allow it's citizens to take THEIR money out of the country. They where watching the ravages of inflation destroy the buying power of their saving and were desperate to try and save what they could. They could spend the money within their own country though. That was permitted. What they did was buy the most expensive boat they could afford with the local currency in South Africa and then sailed it across the Atlantic and put it up for sale in US dollars. At the time I thought both the guy from Maine and the South Africans had guts. There was a lot of risk involved with an international deal of this type. At the time I thought nothing like what happened to the South Africans would ever happen here.

We as Americans are not immune for the law of economics. We are on a path to economic ruin but few people are willing to admit it. The reality is too painful. As Americans we have a false sense of security. I do my best to get people to look at our economic structure and it's fatal flaws but few will listen. Ignorance is bliss. Enjoy while you can.


You have hit on a major point that few ever seem to grasp. Everything in the Universe conforms to the laws that govern it. Two atoms of hydrogen and one of oxygen will always make water, always, for example. Money and economics are governed by immutable laws just like everything else. Mathematics were once part of philosophy and you learned that the incorruptibility of math was part of the evidence that everything in the physical universe is absolute and the best thing to do is understand. You can not violate these laws. When you do, you can expect the exact result each time they are violated. Economic disaster occurs. In, conclusion, we have hell to pay and there is no escaping it.
wsherrick
 
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Re: How to Destroy an Economy

PostBy: coalnewbie On: Thu Sep 06, 2012 4:52 pm

Capital controls in the US are quietly building. Move stuff off shore and they take 30%. Border police are working on devices to detect precious metals and yes currency - big budgets. It's here now and full implementation is a financial crisis away and with our leader that could be very soon..
coalnewbie
 
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Re: How to Destroy an Economy

PostBy: jpete On: Thu Sep 06, 2012 7:17 pm

cokehead wrote: Turns out they where an older couple that had saved for their retirement but as history unfolded in South Africa they had a change in the government and the new government would not allow it's citizens to take THEIR money out of the country.


Try to take money out of the US today and see what happens.

Hell, don't let the local PD catch you with a couple grand in cash.
jpete
 
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Re: How to Destroy an Economy

PostBy: wsherrick On: Fri Sep 07, 2012 12:44 am

jpete wrote:
cokehead wrote: Turns out they where an older couple that had saved for their retirement but as history unfolded in South Africa they had a change in the government and the new government would not allow it's citizens to take THEIR money out of the country.


Try to take money out of the US today and see what happens.

Hell, don't let the local PD catch you with a couple grand in cash.


I wonder if I ever get pulled over on the way to the bank to deposit my savings. Money saved with blood and sweat, and doing without. If they would confiscate the money and interrogate me as to where I got it.
wsherrick
 
Hand Fed Coal Stove: Glenwood Base Heater, Crawford Base Heater
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Re: How to Destroy an Economy

PostBy: Dann757 On: Fri Sep 07, 2012 8:39 am

But Joe and Barry didn't mention any of this last night. Everybody was clasping their hands and crying with joy at the DNC. :D Michelle loves the military, that's why Barry is cutting it by half a trillion bucks, but he personally killed a Bin Laden double with a golf club. Barry loves the USA, that's why he wants free educations for all the illegals. They just want to make sure all the lazy double digit IQ citizens and non-citizens have a guaranteed chance to achieve greatness through the incentive of welfare and food stamps.
Joe Biden explained that if they hadn't paid off the auto unions, that GM and the entire auto industry would have simply vanished, buildings and all, like a Star Trek scene. He forgot to mention GM stock is stillat 1/2 where it would need to be to break even for the taxpayers.
All it takes to save a nation is a good speech.

Now make sure you listen to Franco B, the new resident prolific intellectual! He knows what he is talking about to all us working class coal enthusiasts. After all, he mentioned that Islam condemns the materialism of the west, and rightly so. But he didn't mention that they are all happy to build unimaginably opulent cities and flaunt their oil wealth across the Islamic world.
Dann757
 

Re: How to Destroy an Economy

PostBy: SMITTY On: Fri Sep 07, 2012 9:04 am

I was waiting for someone to bust out a rendition of ..... KUUUUMBAYAAAAAAAAAA! :funny:
SMITTY
 
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Re: How to Destroy an Economy

PostBy: franco b On: Fri Sep 07, 2012 1:59 pm

Dann757 wrote:Now make sure you listen to Franco B, the new resident prolific intellectual! He knows what he is talking about to all us working class coal enthusiasts. After all, he mentioned that Islam condemns the materialism of the west, and rightly so. But he didn't mention that they are all happy to build unimaginably opulent cities and flaunt their oil wealth across the Islamic world.

Dear Dann,
As a working class person all my life I think I understand working class life and can address an opinion to them as well as anyone else. I don't regard them as dolts as you seem to imply. In fact I don't even like the term working class or any class term because it conflicts too much with what I believe is the universality of human experience.

I can only defend what i did say and not what you choose to read into it. Islam is not a person it is a religion. A Muslim is a person. If you tell me there are a lot of Muslim hypocrites I agree with you. If you tell me there are a lot of Muslim fanatics who terrorize even those of there own faith as well as those outside their faith I also would agree, but I would claim that these people are not true followers of Islam just as many who claim to be Christian have committed in the past and in the present many heinous crimes in the name of Christianity.
franco b
 
Hand Fed Coal Stove: V ermont Castings 2310, Franco Belge 262
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