We’re continuing with our special series about Argentina.
(How can they know what it is not to be able to afford a gas cylinder?)
(“We bought 300 wagons, 0 kilometers.
Each of these wagons cost 1 million 90 thousand dollars.)
( Peronism is the search for equal opportunities, the search for social justice, the search
for zero poverty in Argentina)
( All Argentines want the same thing, even if we think differently.)
Folks, Argentina is one of the few countries in the world that is undergoing chronic inflation,
inflation they can’t get rid of.
When you look at the statistics, it leaves you speechless.
This country has experienced high inflationary processes for at least the last five decades.
Fifty years!
In fact, since the Central Bank of Argentina was created in 1935, the accumulated inflation
amounts to this spectacular figure that you see on the screen:
A crazy 256 thousand trillion percent...
256,710,707,160,756,000%
This is the result of an average annual inflation of more than 60%...
Since 1935!
But… why can’t Argentines get rid of inflation?
What role does the political class, businessmen and citizens play in all this?
Why is the dollar so present in the minds of Argentines?
Listen up.
Dear friends, first of all, we need to know exactly what we mean by inflation.
It’s often said that there’s inflation when the prices of the goods and services
demanded by a country’s population increase in a general manner.
But...
Why does it happen?
What causes this phenomenon?
Folks, here’s when that special tool that we all use to make exchanges comes into play:
money.
Well...
Everyone knows that money, currency, was historically metallic and its value was given, precisely,
by each metal’s weight and composition: Copper, silver, gold...
But... obviously, this wasn’t very practical.
So over time, notes that could be converted into gold and silver began to be issued, as
they were easier to carry, divide and therefore use.
The convertibility system was implemented until the 30s, when due to the Great Depression,
countries gradually began to abandon the convertibility system.
Finally, in 1971 Richard Nixon gave it the final punch.
From then on, folks, the value of bills became completely dependent on the trust that the
market had on the economic power, the solvency, of the country that issued them.
That’s why the notes issued by the richest countries usually lead to the greatest value
and confidence in the market.
Meanwhile, governments no longer had to stockpile gold and silver to support their currency.
The end of convertibility gave the governments the chance to use that old friend of ours
as much as they wanted...
The bill-printing machine.
Up until then, if a government wanted to spend more, they either raised taxes or borrowed
money.
However, the end of convertibility gave them another possibility: finance public spending
with the creation of new money.
That is, what is popularly known as running the bill-printing machine.
Although the truth is that nowadays, you only need to push a key and… boom, you create
all the electronic money you want.
Of course, this has consequences.
If central banks are prudent and economic growth accompanies the issuance of new money,
the effect of inflation won’t be excessively damaging.
But when governments pass that barrier... that’s when a very, very serious problem
begins.
Suddenly, folks, an artificial demand is created, that pushes up the price of goods on the one
hand, and on the other makes people lose confidence in that currency...
The result?
A bolting inflation.
Of course, the government responsible for this situation never wants to acknowledge
its responsibility, which is why in the end it always ends up blaming entrepreneurs, accusing
them of being speculators and greedy.
Does this sound familiar?
Then, comes the magic solution – Which only makes things worse: Price controls.
Argentina unveils price controls to tame inflation.
FT)
And no, don’t think this is a new idea.
Not at all:
(Price control in Argentina, a history repeated by different governments, from Peron to Alfonsin,
everyone tried to do the same, and were never successful.
La Nación.)
( And it was all destined to end with a scourge that condemns us all equally...
That of inflation.
And we haven’t done anything.)
Hammurabi's own code (unearthed in 1902), which was enacted before 2,000 BC, set prices,
wages, interest rates, and rates, which means that price controls are at least four thousand
years old.
Henry Hazlitt)
Of course... as this doesn’t work either, and prices go up even more, politicians usually
start raising salaries through decrees and spending more on every kind of plan.
And all this is financed with even more un-backed money issuance.
It’s a vicious circle, that only leads to more and more inflation, which means destroying
the value of savings, destroying a country’s capital;
annihilating legal security; preventing business calculation – which
is essential for making decisions -; and depreciating the national currency.
Folks, few countries in the world know this process better than Argentina.
(THE LAND OF INFLATION)
We’ve told you in several videos, Argentina’s economic situation is terrifying:
( We’re here today, not because we’re against anyone.
We aren’t anti-anyone, we’re in favor of our future because we think we deserve
a better life.)
Little work, low wages, high taxes, disastrous public accounts and, above all, a lot of inflation.
Folks, Argentina’s high inflationary process has been growing steadily since the 1950s.
(Argentina on the podium: a year-after-year inflation of 51.3% is the third highest in
the world only behind Venezuela and Zimbabwe.
BAE Businesses)
Now, can you see the process we just described?
Who on earth is responsible for this inflationary spiral?
Well, folks, check out this chart prepared by the economist Nicolás Cachanosky where
we can see the lack of control that Argentina's public accounts are experiencing.
As you can see, it doesn’t matter who governs, military, civil, Peronist or radical, the
result is the same.
Every Argentine government has devoted itself to spending uncontrollably, resorting to both
issuing debt – first internal and then also external – as well as issuing money.
And that’s precisely what has caused Argentina’s current economic disaster.
Yes, you heard that correctly: Not imports, not vulture capitalism, not greedy businessmen.
The truth is that these huge public deficits have been financed and continue to be financed
with a huge external debt and very high inflation rates, that is, with the bill-printing machine.
Check out this table where you can see the average annual inflation rates that each Argentinian
president has had since 1943.
Some presidents weren’t in power for long, even less than a year.
Others were in the presidential chair much longer.
Presidents such as the very well-known Perón, Videla or Alfonsín, Cristina Fernández de
Kirchner or Mauricio Macri... were very different, but practically every president had something
in common: very high inflation rates.
This process, folks, has been so constant that Argentines are now used to living with
huge inflation.
Of course, that doesn’t lessen their disastrous economic effects at all, it can even make
them worse.
It’s logical that when you get used a quickly devaluing currency… all market participants
act accordingly:
Entrepreneurs try to compensate for risk, for example by raising prices even more.
The unions demand wage increases, just in case, and the government, in an attempt to
compensate for all the economic and social problems that have emerged, keep approving
all kinds of regulations, issuing debt in foreign currency – because, of course, the
time comes when local financial markets no longer serve any purpose – and continue
to run the bill-printing machine.
And the problem just accumulates and continues.
A kind of race organized and driven by politicians in which all participants lose, especially
the poorest, those who depend on their salary to survive.
Pre-bendarial businessmen, mafia unionists and ignorant and corrupt politicians.)
And we can’t fool ourselves.
A clear result of high inflation is that it destroys a country’s competitiveness, how?
Well first by consuming its savings, the local capital.
And then, when governments introduce restrictions of all kinds to deal with the uncontrolled
price increases, that ends up creating unstable industries and economies that can’t compete
in the world.
This, folks, is precisely what is happening in Argentina, and that's why Argentina can’t
get out of a crisis without getting into another.
Because we’re talking about more than 50 years of mistakes.
Because Argentinian politicians don’t learn.
(Recurrent fiscal deficit: (in 2018) the State covered only 85% of its expenses with actual
income.
Infobae.
Argentina: The debt is now close to 97.7% of the country's GDP and is the highest in
the region.
El Comercio)
Now, the question is, do Argentinians have any defense mechanism?
Is there an instrument that can help them protect themselves from the stubbornness of
politicians?
Yes, in a certain way, there is one.
Listen up.
(THE DOLLAR WORLD)
You don’t need to be an economist to know that having savings in Argentine pesos is
a very, very bad idea.
It’s something that those of you who follow us from Argentina know all too well.
So... if your currency is losing value by the day... in such an significant way, then
you have no choice but to look for another currency to better preserve the value of your
savings.
And in Argentina’s case, and for virtually every country in the world with the same problem,
that currency is the US dollar.
("The Argentine economy is de facto dollarized, it must be done for real”.
Roberto Cachanosky)
In Argentina, it’s usual for everyone to know the exchange rate of the dollar to the
Argentine peso.
And for Argentinians, the dollar is important for several reasons: first, because the price
of products is closely linked to the price of the dollar.
Allow me to explain.
Argentina imports several goods and with their own currency, the peso, losing value so quickly,
practically everything is traded in dollars – which is also the international reserve
currency.
This also happens with Argentine exports... the dollar is more stable and ultimately becomes
the reference unit.
Prices in pesos are like a crazy thermometer that changes temperature constantly.
Secondly, and most importantly, the dollar is a currency that allows Argentinians to
maintain the value of their savings.
Yes, it’s true that the dollar also suffers from inflation, but in proportions that can’t
be compared to the Argentine peso.
For example, if in 2001 we had saved 20,000 pesos in a drawer, enough at the time for
an average car, by 2019, with that same money, we could hardly afford a smartphone.
And no, it wouldn’t be an iPhone.
The loss of value of the Argentine Peso is simply spectacular:
That, folks, explains why in countries with high inflation, the dollar circulates almost
as if it were a national currency.
It happens in Argentina, and even North Korea uses dollars.
Since 1950, Argentina has barely managed to go 10 years, between 1993 and 2002, with inflation
at moderate levels, below 4%.
That’s only ten years in almost seven decades.
Thus, Argentina has become one of the few countries in the world that cannot control
inflation.
And, folks, make no mistake, the solution is clear: reduce public spending, balance
budgets and stop being so dependent on the central bank.
Politicians know this, the question is, why on earth don’t they implement it?
And this leads me to another question: Will Argentinian politicians be able to end this
eternal spiral of inflation?
Leave your answer in the comments as well as in the survey.
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the vocals in this episode that were not mine.
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And as always, thanks for watching!