the dollar vigilante blog
Don't Cry for Argentina
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After having spent the last two weeks in Argentina I found myself sleeping last night on a cold floor in Buenos Aire's Ezeiza airport wondering if and how I was going to get out of the country. The problem? Why, the government, of course. The amount of government involvement that led to my being stranded almost boggles the mind.
Before I tell that story, however, here is a little background on the country of Argentina.
A BRIEF HISTORY OF ARGENTINA
After a tumultuous period of colonization that included two British invasions and then a War of Independence from 1810-1820 and then civil wars and battles spanning from 1820-1880 Argentina increased in prosperity between 1880 and 1929 and emerged as one of the ten richest countries in the world, benefiting from a fairly free market, an agricultural export-led economy as well as British and French investment. In 1920 the phrase “Rich as an Argentine” was coined in Paris. Flush with new-found export wealth, the country’s elite would travel to European capitals for shopping sprees of clothing, fabrics and antiques.
As was the case throughout most of the 20th century, however, free market wealth was quickly usurped by democracy and socialism to destroy the golden egg. Democracy has been proven a false god and always leads to destruction of society and economy and in Argentina, mandatory male suffrage was enacted in 1912, setting the initial stages of problems we still witness today.
Suffrage was enacted under the impetus of the man who began Argentina down the road of impoverishment where it still stands today, Hipólito Yrigoyen. Yrigoyen was twice President of Argentina (from 1916 to 1922, and again from 1928 to 1930). Like many socialists, he had a moniker contrary to his actual results, as he was nicknamed “the father of the poor”. He enacted social and economic reforms and stole from others (tax) to give (subsidize) farmers. One of his worst crimes, after suffrage, was instituting a public education system. A system that to this day indoctrinates Argentine children to enslave themselves via socialism and to rebuke the free market.
Since then it has been a never-ending series of collapses. From 1969 to present, the Argentine peso has hyperinflated into worthlessness or been devalued tremendously five times in just over forty years. The almost systematic, regularly recurring collapses led Doug Casey to recently ponder, "they must like it". Perhaps hyperinflation is a national sport in Argentina.
HYPERINFLATION AS NATIONAL SPORT
In 1969 the Argentine peso moneda nacional was hyperinflated into worthlessness and replaced by the peso ley at a ratio of 100:1. Fourteen years later, in 1983, the peso ley had been hyperinflated into worthlessness and replaced by the peso argentine at a ratio of 1000:1. The peso argentine only lasted two years and then was hyperinflated into worthlessness and replaced by the Argentine austral at a ratio of 1000:1. The austral lasted six years and hyperinflated into worthlessness and was replaced by the peso convertible in 1992 at a ratio of 10,000:1.
For those keeping track, after the various changes of currency and dropping of zeroes, one peso convertible in 1992 was equivalent to 10,000,000,000,000 (10 trillion) of the original peso moneda nacional.
Yet, even that was not the end. Argentina went through yet another financial crisis in 2001 leading to the peso convertible becoming non-convertible and devaluing by 75%.
Looking at the calendar, it is about time for another hyperinflationary collapse... or at least a massive devaluation. All the components are aligning for this as the public school indoctrinated people of Argentina have re-elected socialist/communist/fascist (they call it Peronism in Argentina) Cristina Fernández de Kirchner in October of this year.
The communo-fascist regime states that inflation this year is "only 11%" but so far this year, the government has fined at least nine economic research firms 500,000 pesos ($122,000) each for stating that the real inflation numbers are between 20-40%.
On October 31st the Argentina government imposed currency controls that imposes strict limits on the ability of people to acquire US dollars. This indicates that another collapse or massive devaluation is in process.
It has only been six months since my last visit to Argentina and the increase in prices - even in US dollar terms - has been very noticeable. Prices of taxis, food and hotel appear to have increased by 50-100%. And, when trying to pre-book a hotel for our next visit to Argentina in March, we were quoted a rate 100% higher than the current rate.
You may think, why would prices be rising in US dollars if the Argentine peso is entering hyperinflation? The answer is not simple but there are many reasons for this to occur. For one, the foreign exchange value of a currency can lag the inflation of the local currency. Secondly, a decrease in supply of products - something caused by massive government intervention in the market - can also cause prices to rise.
Five years ago, in US dollar terms, a very nice steak dinner with an appetizer and wine in Buenos Aires would cost $15 and a 45 minute ride from the airport in a taxi would cost $15. Today, that same dinner costs $60 and the taxi ride costs about $45. An increase of 300-400% in five years.
Will this last? Of course not. All one needs to do is to look at the last forty year history of the peso to know the future. And with capital controls now instated, we estimate that a major devaluation or a hyperinflationary collapse will likely happen even before we next return to Argentina in March of 2012.
HOW I ENDED UP SLEEPING ON THE FLOOR OF THE AIRPORT
Which brings me back to the beginning of this story. Stupidly, I had booked my tickets to and from Argentina via Aerolineas Argentina (AA). AA was nationalized by the Argentine government in 2008 and they changed my flight times twice in the matter of days - often by one day in advance or prior... causing me no end of trouble as I scurried to change other flights, meetings and hotel bookings.
Finally, they said that my flight would be for Monday at 1:10am. It wasn't the best time for me but I was happy just to have a confirmed flight time. When I showed up to Ezeiza airport it seemed very quiet. There was no one in line, yet they had those snaking columns of roping tenfold. I looked at it and figured it would take me five minutes just to make it through it all so I walked around to the outside and to the front where a non-friendly AA government employee informed me that I could not enter in the front and that I had to go back and go through the ropes.
I looked at him with disbelief and said, "Que? Como un raton?" (What? Like a mouse?). He grinned. "Si, como un raton."
I pondered for a moment causing a disturbance but decided it was late and wasn't worth it, so I spent five minutes walking through the empty line to the front where they informed me that all flights for the day had been cancelled. The reason? A union strike.
Highly socialist Argentina is filled to the brim with unions. There are unions for everything and they go on strike with great regularity. In this case, the Technical Aeronautical Staff Association (APTA) had gone on strike.
Take note of this. Why do unions say they need to use governmental power to exist? They say it is because capitalism and free market corporations are bad and will take advantage of "the workers". So, here is some real socialist fun in action. APTA going on strike AGAINST the government. Furthermore, the union leader stated, "Flight delays and cancellations are the exclusive consequence of technical problems and lack of personnel. Had they run the company in a better way over the past three years (SINCE IT WAS NATIONALIZED) we would not be having theses troubles today.”
The governmental incompetence mounted when it took them until 3am to tell us that they couldn't find any hotels in Buenos Aires - a city of 12 million - to put us up for the night. Since our flight had been rescheduled to 10am and a drive back to BA is about an hour we figured we might as well just sleep in the airport.
I asked them if we could check in now and go into the terminal to rest. They informed me that, "No, the police don't allow anyone to enter more than four hours before their flight". So we, along with dozens of others, spent a wonderful night on the cold concrete of Terminal C in Ezeiza airport.
It was only upon returning, very happily, to more capitalist Mexico that I heard the news that the only reason we got on the late morning flight on Monday was because the fasco-communist government had gone around the socialist-minded unions and instated the government air force in control of operations. Oh the fun of central planning and socialism.
DON'T CRY FOR ARGENTINA
Why shouldn't we cry for Argentina? Because while the majority of people have been brainwashed for decades in socialism and anti-capitalism, the internet has now existed for more than 15 years and they have had the opportunity to educate themselves and stop the cycle of constant collapse.
You might ask, why in the world would we want to live in Argentina at Doug's Gulch then? The answer is quite simple. While the government is highly socialist/communist, they are also incredibly inept. For foreigners, their involvement in our lives amount mostly to flight delays and occasional petroleum scarcity. In this respect, we will likely plan our next trip to Cafayate through Santa Cruz, Bolivia via Aerosur airlines, and try to avoid state-owned AA at all costs.
Another reason we aren't too concerned about the current state of the Argentine government is that they are on the verge of another collapse - something that will no doubt happen in the next year or two, at most. This will usher in another brief respite of free markets and, we hope, the Argentines will use the internet to learn why their country keeps collapsing on such a regular basis and resist the urge to return to socialism and central banking.
However, even if they do continue on in this pattern, Doug's Gultch is in the very quiet northern province of Salta where people barely pay attention to the ongoing circus in Buenos Aires. And if the peso were to collapse again, life there would not change at all. The people of Cafayate would shrug their shoulders and say, "otra vez?" (again?) and go back to life as normal.
When the US dollar collapses, do you think Americans will do the same?