As our readers know, we are big fans of Argentina. This is so because it is a shining (dark) light illuminating (so to speak) the debacles that are awaiting all other countries at the end of the Monetarist tunnel. Argentina officially went into a self-imposed default (yeah… sure) on Jul 30, 2014 when Standard & Poor so declared. What a difference three months make!...not!
As we highlighted in our article The Default Shall Be Televised the default is to be blamed on "Vulture" funds and a by-the-book curmudgeon ("cascarrabias") judge in New York. Of course, this default has absolutely nothing to do with ridiculous populist and borderline communist Argentine economic policies. No sir. It also has absolutely nothing to do with Argentine politicians willing to do whatever it takes (including sinking the country) to remain in power. And it has absolutely nothing whatsoever to do with the fact that the Argentine Central Bank is printing money like it is going out of style. No sir.
Today the official economic numbers for the first six month of 2014 are out. The annualized GDP is about 0.1%. This number does not seem too bad. Now consider the following.
The real inflation in Argentina is in the order of 40%. As the GDP includes money printed by Central Banks, this means that a rough estimate of the Real GDP is about -40%. Let us highlight this again.
In about 6 months.
What this means is that over the last 6 months there were about 40% less goods and services produced than in 2013. In other words, between Jan 2014 and July 2014 there is 40% less wealth than in 2013.
This is what a depression looks like. Depression? Not even. This is just the beginning. For Argentines this is simply yet another routine economic debacle. Consider this.
The monthly rental cost of a no-frills two bedroom apartment is about 4000 pesos. A single grocery run for a family of three that may support them for one week is about 1000 pesos. In other words, the cost of renting for a month is roughly equivalent to 4 excursions to a supermarket for a typical family. What is the equivalent in a "developed" country? About 10. Rents are dirt cheap because it is buyer's market. Owners of rental properties are desperate. Food is expensive because it is a seller's market. People will substitute food but they can hardly stop eating.
What are the typical Guarantee Investment Certificate (known as "Plazo Fijo") yearly interest rates? About 25%. This means that if you would to deposit your money in the bank, you would lose "only" about 15% of its value over one year.
What is the value of the street US dollar (or "blue" dollar)? About 14.5 pesos per dollar (up about 4 pesos since the beginning of the year).
What is the best "standard" indexed salary in Argentina? Construction. What is their yearly increase? About 22%. Which means that construction worker are losing "only" 18% of their purchasing power per year.
Mortgages? 20% per year… plus the "official" inflation index. Grand total? About 42% per year.
What are the US Dollar reserves in the Argentine Central Bank? US dollar reserves are the only thing that props-up the value of the Argentine peso. No reserves, no value. How many reserves are there? About 12.5 billion. In 2010 they were of about 50 billion. Are these reserves decreasing too rapidly? Certainly, they are already unsustainable. When are they forecasted to reach zero? By the end of 2015. In a little more than one year. And then what? Zimbabwe and hyperinflation (see Alpha And Omega). Game over. Stiff investors. Restructure debt. Reset. Start again.
For any country in the world, this is what a Depression looks like. For Argentines this is routine. If you cringe at these numbers, get used to them. Consider this an Armageddon trial run. The only problem is that we, along with Argentine people, are all stuck in a loop condemned to repeat this debacle forever. This is what awaits all countries in the world. Some will go sooner, some later but all will go. Courtesy of politicians and idiotic socialist policies (see for example our Incompetence Socialist Index).
But that's OK. You don't live in Argentina. You live in a "developed" country. Sure. If you have the time, we suggest you read the book "This Time Is Different: Eight Centuries of Financial Folly" where the authors describe in detail the outstanding financial track record of so-called "developed" nations over 8 centuries. We guarantee you will be surprised. One warning though, their final recommendations are all wrong, but the statistics are impressive!
But then again, you may be a "democrat" who believes in "law and order". Very well then, we have a question for you. Do you believe that the majority of Argentines voted for a wealth destruction of 40% over the last 6 months? What a question to ponder about!
Note: please see the Glossary if you are unfamiliar with certain words.
