Argentine Economy

[Damman]

I have got to get a life. Anyway, the $300K debt number, thought you were referring to personal debt. As for the national debt number per household, off the charts and incomprehensible. Very scary. However, people and countries get in line every month to buy treasuries. What can I say. And you are correct, US has the luxury of having the bench mark currency for the world and can print paper to pay their debts. Quite sure the Chinese are going to make a run at the dollar, but their record is not all that great yet. Who would you loan money to? Like it or not, the only reason the dollar is the benchmark currency of the world, never missed a payment. Again, love or hate the US, they always pay.

The point is to demonstrate that there is absolutely no difference between Argentina and the US regarding debt. The problem is simply unsolvable since it s gone out of control. What saves the US from a massive devaluation is the international status of their currency dating back from 1945 (the USA are allowed to print money for international trading needs) A status that the pace of debt will undoubtedly fragilize.

Forgive me Mata, but I cannot see how Argentina's debt can possibly be compared with the debt of Gringo land. It all comes down to credit worthiness. What is Argentina's FICO score? Everyone experiences hard times. For Argentina, it has been an ongoing soap opera for fifty years. That is where I have a problem with understanding the mind set of the Argentine people. Very proud industrious population, plenty of natural resouces to go around, should be self sufficient in every respect, but..... nothing to show for it. They have had enough revolutions to fill two encyclopedias and nothing changes.

[SteveC]

Damman,

I may be naîve but the main reasons why I think Argentina has been such an economic disaster for the last 60 years or so were; lack of democracy, and corruption. From the 30's until 1983 the country never had any kind of democratic government. A succession of military dictatorships, or their friends, forming governments, and the biggest party being excluded from elections, was never going to bring sound economic growth. The fact that the country would win gold if corruption was an Olympic sport doesn't help either. Menen would have won more gold than Michael Phelps.

[MataHari]

Hello Damman,

You are right, numbers are worthless without cited sources. I checked those numbers that I had in mind and found out I underestimated them by far.

The total debt per us household was actually more than 700,000 USD by the end first quarter 2009, for a total of 52,592 billion dollars. (Z1 federak stat: http://www.federalreserve.gov/releas...Current/z1.pdf)

In 1983, 1.63 dollar of debt was needed to make one dollar of growth.
In 1997, 3.06 dollars were needed for that growth dollar
In 2008, 6.86 dolllars
In 2009, the massive injection of cash failed to bring growth, except on stock market.

Here is a link that will tell you more about the exponential growth of US debt : http://mwhodges.home.att.net/nat-debt/debt-nat.htm

The point is to demonstrate that there is absolutely no difference between Argentina and the US regarding debt. The problem is simply unsolvable since it s gone out of control. What saves the US from a massive devaluation is the international status of their currency dating back from 1945 (the USA are allowed to print money for international trading needs) A status that the pace of debt will undoubtedly fragilize.

Joe, I know some countries that regulate the growth of rent based on a construction cost index, more or less linked to inflation. This seems to be a fair basis.

[Damman]

WTF: they have nationalized pensions, airlines, utilities, futball and now apartment rentals. What is next, privados?

[Joe Hernandez]

If I understand the proposal right the owner can only enforce a 2% yearly rent of the declared value of the property. He can off course try to increase the declared value of the property but that would mean that he would have to pay more taxes. As a guarantee only a bank-guarantee will be accepted and someone can stay for 5 years (I would assume with a yearly price increase)

The temporary rentals will also be limited to 3 months.

I don't know how the final plans will be but I would think that if the rental-return is too low many people prefer not to rent out or try to rent out to foreigners, but there is a big oversuply already.

[Damman]

Anyone hear about some proposal in Congress about rent controls? The Boss told me the F..... is crazy. The best I came up with is (Google Translator):

Under the initiative, the price payable for the locations, without distinction, should not "depend on the market," but the result of a calculation that would determine the value arising from the tax valuation of each unit and divide by 150 This sort of whimsical shape formula, substantially disadvantageous to landlords.

http://www.lanacion.com.ar/nota.asp?nota_id=1161676

[Damman]

What s the difference between Argentina s thirst for cash and USA s addiction to credit? It seems to me that the debt per household (300,000 USD total debt per household) in the USA is at least 10 times what an average argentine household ows.

MataHari:

Do not know about the idea of "300,000 USD total debt per household." Think it must be remembered that at least 85% of US households are plugging away and making ends meet. Would imagine the numbers in Argentina are about the same: making ends meet.

Access credit / accessing cash are one and the same, no? It is not important, cutting hairs. The point with me is Argentina's permanent predicament, always having to go beg for credit / cash on the world market. It has been a very long time, 50 years maybe, since Argentina has been solvent. Know the idea of begging is offensive, but it is what it is.

In my mind, Argentina should be a very prosperous country. The people are highly educated and the people I know, work and play hard. Find myself at a loss for an explanation, why is Argentina always in a pickle financially? It has been allowed to go on for so long, generation after generation, it is a way of life. Everyone can blame the Government for their problems, but find that to be cop out. Many governments have come and gone in the last fifty years and it is always the same old story: beg for a loan. If you look around the world and count the countries that have pulled themselves out of the depths of despair and turned the corner in past fifty years, it is amazing. However, even with a running start, natural resources and the sophistication of Argentina, it does not make the cut. Guess I have more questions than answers.

[MataHari]

Thanks for your intervention and your link, Town. This video report is very pedagogic and explains in simple words the logic behind the creation of money. But some statements are simply false.

Money is not created out of nothing, since the money lent is backed with the value of a solid asset. If the borrower fails to pay back the money lent + interests, the banker gets the money back by acquiring the underlying asset: house for individuals, firm ownership for companies. Interest rates are the money creation, and they are paid with actual work. Or capital gains.

The problem lies in the need to maintain perpetual growth to avoid a collapse of the system. When work is not enough to maintain the requiered level of growth, debt is used for speculating purposes on the value of the underlying solid assets to keep the necessary growth. This creates real estate and stock market bubbles. The system is then in danger since it s based on artificial values.

And to answer your point, a federal bank, private or public, has no choice but to follow a governments needs and will. Jackson, the president, not the Monger in Chief, got rid of the Federal Bank because they were playing against his interests and distrusted their capacity to create unlimited money without government control. The "independant" status is just, like the monetary system, an illusion, a fairy tale to fit with a democratic other fairy tale. Debt keeps the individual under pressure all his life long, with the illusion of a freedom of choice.

The fact is that the level of debt, even with interest rates for free, passed a level of never return. Even if all us citizens kept the current "crisis rate" of saving at 5% , which would affect the growth rate of consumption permanently, they would be unable to refund that debt with a whole life of work. The only way to lower the debt is create more asset value bubbles and more crisis subsequently. This is why the money lent to american banks mainly by chinese banks was used to speculate on stock exchange: the need to initiate another bubble "as if nothing happened" to save the retiring system based on capital gains. Another evidence of the submission of banks to governments will/need/interests.

One last point, debt is not the only global money creation system. The best evidence is that some states are net debtors and others are net creditors. The federal government doesnt borrow its own money, but the money created elsewhere (global financial system) Those that have the means to lend money to those who don t actually SAVE money, those that spend less than they earn to those that can t save, intoxicated by the cultural and fabricated urge to consume.

[Towncryr]

Quote: The federal government is not directly responsible for the subprime crisis. It is indirectly by setting interest rates very low, which induced a real estate bubble, disconnected from real income growth. The money created on house values was then totally virtual. But it is of individual s responsability to not let themselves get trapped into the housing gold rush, speculating on ever increasing prices.

First thing you'd better do is some homework. The Federal Reserve, and ALL Central Banks, are PRIVATE BANKS! NOT "Federal" but "PRIVATE Banking Cartels." This is what they DID NOT teach you in Economics!

Bet you think "money" is "money" also heh? What we call "money" is actually "debt" not "money." The "debt" that's created and attached compound interest can NEVER BE REPAID! THE INTEREST HAS NEVER BEEN "CREATED."

The Titanic has hit the iceberg and is about to totally go under and to the bottom. If you want to even start to understand the worldwide disaster that looms.

http://video.google.com/videosearch?...Debt%22&emb=0#

Excellent 47 minute animated explanation.

[MataHari]

The federal government is not directly responsible for the subprime crisis. It is indirectly by setting interest rates very low, which induced a real estate bubble, disconnected from real income growth. The money created on house values was then totally virtual. But it is of individual s responsability to not let themselves get trapped into the housing gold rush, speculating on ever increasing prices.

300,000 USD is almost a lifetime saving capacity. US citizens are kept under the pressure of debt all their life long, borrowing to pay for their studies to end up borrowing to pay for their medication. If work is not enough to refund the abyssal debt, the us american economy is condemned to initiate one bubble after another, hoping for capital gains. This will lead to violent assets value corrections and financial crises every 10 years, like in Argentina, since those assets will have to be disconnected from their real value to create money to refund the debt, and force to borrow more in crisis times.

When individuals spend more than they earn (negative personal saving rate), i dont see how they could possibly refund their debt, not mentioning federal debt, only with their work.

A vicious circle that endangers the global ecomic stability, and will give more and more power to countries with positive cash flow.

[SteveC]

The difference is that the American people actually have the capacity to repay the debts that the US Government has incurred on their behalf.

Thanks,

Jackson

Funniest thing I've heard all week. Probably the truest too.

[Jackson]

What s the difference between Argentina s thirst for cash and USA s addiction to credit? It seems to me that the debt per household (300,000 USD total debt per household) in the USA is at least 10 times what an average argentine household ows.

The difference is that the American people actually have the capacity to repay the debts that the US Government has incurred on their behalf.

Thanks,

Jackson

[MataHari]

Joe:

Misunderstood your point.

Argentina is like that friend you love and is always in a financial bind. You loan them money and they do pay you. However, two days after you get paid, they are back on your doorstep asking for another loan and the cycle starts all over again. The loan is never paid off except for about eight days a year.

All I wish to know is, how do I position myself when the peso goes to hell in a hand basket?

What s the difference between Argentina s thirst for cash and USA s addiction to credit? It seems to me that the debt per household (300,000 USD total debt per household) in the USA is at least 10 times what an average argentine household ows.

[MataHari]

Buy dollars or Euros.

Given the insane out of control public debt of western economies, I d rather buy solid assets than paper produced en masse based on nothing tangible. Buy rare or soon to be rare assets: art pieces, oil, metals. Real estate next year in the US and Great Britain from next year on could be worth a look, even tho high unemployment and toughened credit rules should sitll weight on those markets for a few years.

[Joe Hernandez]

Joe:

Misunderstood your point.

Argentina is like that friend you love and is always in a financial bind. You loan them money and they do pay you. However, two days after you get paid, they are back on your doorstep asking for another loan and the cycle starts all over again. The loan is never paid off except for about eight days a year.

All I wish to know is, how do I position myself when the peso goes to hell in a hand basket?

Buy dollars or Euros.