Fiscal Nightmare: Argentina Teeters On Precipice. Will Bitcoin Ride To The Rescue?Submitted by Smudge Pot on Sun, 01/26/2014 - 14:00
All hemipsherical eyes are on Argentina as it continues to pursue insane Keynesian policies. There's a good chance this nation will undergo serious trouble. The history here points not only to economic disaster but literal carnage. Bloodshed. Not just in markets but on the streets.
This is not such an easy situtaion to understand but they sure didn't get here overnight. Looking back at my article 4 Pillars Of Understanding Latin America and applying it to Argentina we'd see:
1. There's not a huge indigenous element at play here. Despite it's location, this Argentinian issue behaves like and basically is a European issue. That simplifies the situation and it's about the only simplifying factor in our favor.
2. Conquest was brutal but remnant populations are once again miniscule. As far as monarchical patrimony, this government lurched back and forth between loyalists and rebel republicans through it's colonial period. Unfortunately this set the pattern going forward.
3. Argentina is importantly situated geopolitically, they do great overseas business, it's one of those shipping lanes where a good amount of traffic will round the "Southern cone" rather than steam up through Panama. They are still a huge commodities producer, agricultural product heavy but they have metal and manufacturing. With relatively low population density and at least a decade of trade surplus, one would think they'd be pretty well off.
4. Succeeding regimes are marked by almost regular coups and putsches. Historically the military in Argentina has absolutely no problem intervening when they see civilian government fail. They've done it repeatedly and theres historical factors at work in the Argentine military that predispose it to take control (hint: admiralty tradition).
Looking at the current regime, to charactarize them as socialist or republican leaning, THEY ARE ALL SOCIALISTS BY OUR METRICS. President Christina Kirchner is yet another former first lady, Argentina has this tradition of making first ladies into presidents after their husband presidents reach term limits, and she was a Peronista sympathiser in her youth. Her policies are fiscally horrendous and in my opinion, the only thing preventing present events was the commodities boom which was very good to Argentina and it's economy. This allowed Kirchner to continue the traditions of patronage, largesse and entitlements that keep her socialist constituents happy. Tragically, the world isn't so concerned with commodities these days and Argentina's export surplus (once around 15%) is getting whittled down. Plus now they just happen to be experiencing drought and pestilence issues with their soybean and corn crops. Really not great timing as trade partners like China reduce their reliance on this supply.
Meanhile they have been messing with their currency, inflating and devaluing to maintain trade incentive, they already have like a zillion controls in place on everything from pay scales to prices, tons of legistlation riddled with special interests and kickbacks and concessions, limitations on trade on EVERYBODY, common citizen/investors included. And this is like THE STATUS QUO HERE. This normal; the ambient level of insanity.
With absolute predictability, Kirchners' administration went right back to the socialist playbook in response. They knew what was coming. Argentinians are experts at playing currency markets for all the reasons touched on above. Capital flight triggers in an instant and becomes an avalanche in a heartbeat. So quite naturally the administration put controls on how much USD and other currency people could "buy" and set an official exchange rate which is once again riddled with loopholes and special favors...
...which just as naturally set up a thriving black market for USD. Therefore investors like Golden Equity of DP fame are tracking official rates and the black market (the "blue dollar) and black market has naturally assumed what we consider to be the "real" rates. How real they are isn't the point, it's just the more reliable of two indicators.
Meanwhile THE ENTIRE WORLD, not just the nations that peg or set their values/rates on USD, not just nations like Ecuador that literally use USD for their currency but everybody that does business with them, thence pretty much anybody doing business anywhere, is looking at what "The Fed" is gonna do next.
What do they call the United States Federal Reserve Bank in South America? They call it "The Fed" like everybody else does. No matter where you go these days it's The Fed or maybe "el Fed". Naturally this causes even more uncertainty and would trigger more capitol flight but they went ahead and prevented citizens from buying much of it, they are attempting to clamp down on ecommerce along with historic commerce to keep citizens from buying material objects as a further hedge and they have begun arresting bankers not just for trying to keep people protected, they are desperately trying anything they can to secure non-ARG-Peso for their own families!
It's only about a year since police forces started going on strike because their wages were inflated below poverty. This touched off riots and looting. The situation now could play out much more grimly. Historically there is no government check on it's own insanity. There is no point at which they won't keep trying to intervene and control the situation. There is no turning point, it's not in the instruction book.
If the latest Kirchner administration doesn't get a massive influsion of dumb luck and no other forces can prevail, they will lose control of the nation and the military will intervene. Period.
The plus side, and this is one reason we are keeping Argentina on our map and on our summer South American Investment Tour is that it's a bargain hunter's paradise and a WONDERFUL place to vacation at this moment. But now for the good part.
BITCOINERS! WORK THE LOCAL CLUBS! WE'RE GONNA GET SOME VERBIAGE TOGETHER FOR YOU, GET IN TOUCH.
This is where the magic of bitcoin is really happening now. Argentina has the highest level of internet penetration in the region, it's investors are globally savvy and they are doing everything they can to obtain bitcoin right now. Bitcoin penetration itself is predictably lagging other nations and I fear it might be a bit too late to prevent utter disaster in this case but it has the potential to be THE ANSWER.
If you are a bitcoin evangelist interested in the region, for now we actually can't pretend to advise you AND tell you to patronize bitcoin friendly business in Argentina, with the exchange like this you'd have to either be insane or a philanthropist to do so but we are frankly ASKING YOU WHO WANT TO CASH OUT OF BITCOIN AT THIS TIME TO CONSIDER SELLING SOME INTO ARGENTINA. The opportunity for a very good deal is there once we hook you up with network buyers.
Incidentally, Venezuela is going through some similar (and worse) pains. This is really gonna be the decade that decides South America. If left to proceed, it's going to become clearer and clearer that free market policies are working and Keynesian socialism is the path to misery.
With that I'll go ahead an open up for questions. Big ones you should be asking is how this might influence Peruvian, Urugyayan and Paraguayan policy, what will the USA government do in response, what will the IMF and World Bank do to futher screw with the situation and what will be the response to basically GUARANTEED BITCOIN ADOPTION IN THE REGION? And what will this mean for future regional investors? But then with you guys I can never quite tell. Food for thought at the very least.
Less ranty version, more articles, get in touch at www.SouthAmericaInvestment.com