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Crying for Argentina


It has been decades since I was last in Argentina, but I remember it as a beautiful country, as well as the breadbasket of South America, supplying grain and livestock.  However, it has been plagued with severe boom-bust cycles.  Here are a few current factoids:

  1. GDP dropped 10% last year.

  2. Their stock market has dropped 90% over the last 3 years.

  3. Companies may not layoff any employees.

  4. The central government pays up to 50% of employee salaries.

  5. Inflation is running at 36%

  6. Recurring currency crises have required frequent bailouts by the international community.  For example, it received a $44 billion loan from the IMF in 2001 but only has $5 billion in cash for repayment this year.  Another currency crisis appears inevitable.

To some extent, all economies have a boom-bust cycle but some are more severe.  Argentina has followed a pattern of aggravating the bust by electing Peronists, who have turned recessions into depressions.  You’ll recall Juan Peron (1895-1974), who was married to the iconic Evita.  According to Wikipedia, “Peronism is a political phenomenon that draws support from both the political left and political right. Peronism is not considered a traditional ideology, but a political movement, because of the wide variety of people who call themselves Peronists, and there is great controversy surrounding his personality.”  Whenever recession creates unrest, a Peronist runs for election as a populist to protect the workers and debasing their currency in doing so.  The current President is Alberto Fernandez, a well-known Peronist.

While comparisons between Peron and Trump are inevitable.  They were both egomaniacs married to beautiful women, who described themselves as populists and admired Benito Mussolini.  But there were differences.  Peron grew up poor and held office ten years.  Trump grew up rich and held office four years.  Peronists strongly believe in taxing the wealthy.  Trumpists do not.

More importantly, Argentina’s budget deficit was 8.5% of GDP last year, compared to the U.S. which is almost 15% now.  Argentina has been cursed with numerous currency crises, while the U.S. has not.  That’s the blessing of having a reserve currency . . . King Dollar!

Maybe the key to surviving an egomaniacal populist is having a reserve currency?

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