Tuesday, April 13, 2010

When S really... REALLY Hits the Fan.

In 2001 the average Argentine worker made 841 USD per month, best paid workers in Latin America.

A year later in 2002, after the economic collapse, the average Argentine worker made 230 USD per month, worst paid worker in Latin America.


From best paid to worst paid in just a couple of weeks.
Think about it for a second, a reduction of 73% in your salary.
Lets be kind and say that, due to the inflation not catching up with the devaluation, the real reduciton of salary 50% average for the middle class.

Talking about non-BS survival, would you be able to deal with THAT as of today?
What about the rest of the citizens, how would they cope?
... what if it actually happens for real as it did here?
What if you dont have a choice?



Loquisimo said...

Fernando, the big problem in the USA is that most people have huge debt burdens that must be satisfied no matter what. If the USD is devalued, and people are suddenly making 60% less money, yet the greedy banks are still demanding debt payments on par with the old monetary values, that's a recipe for revolution.

Considering that the banks have absolutely REFUSED to lower mortgage payments for distressed borrowers, preferring to foreclose on the homes, it is likely that they would still demand that the debts be paid when people are unable to pay them. Multiply that by the whole society, and put 300 million guns into the mix, and people would rebel.

Since the army's pay would also be devalued, it's not certain that the soldiers would obey orders to kill millions upon millions of rebelling citizens. Killing Iraqis is one thing, killing your friends and relatives is quite another. The end result would be the collapse of society, probably.

IF there's a new govt, it would probably repudiate all the debts of the old one, and the world financial system would spiral downward. The US is the Big Kahuna, not some South American basket case. If the Big Kahuna falls, what happens? Would it be the Fall of Rome, and a descent into barbarism? Maybe.

Do the bankers end up owning the world, and if so what do they do with it, and how long can they hold off billions of dispossessed and starving? Do we become the slaves of the new lords? It's possible that the world's only superpower can default on its debts and the world will not spin on, unlike when Argentina defaulted. Civilization might come to a screeching halt.

Anonymous said...

We'd be hosed in a major way. Can't even imagine it. Houston, Texas.

gaga said...

"the big problem in the USA is that most people have huge debt burdens that must be satisfied no matter what."

Fortunately, American debt is all is USD the same as they earn. America (like most western countries) doesn't have foreign currency loans. In Iceland for instance something like 90% of car loans and 10% of house loans were in foreign currency which doubled in size when the currency collapsed. Iceland is going the way of Argentina.

Patrick said...

Maybe crafty American entreprenuers will start outsourcing to China and earn some sweet Renminbi, then you'll get inflation in the US where the people making foreign income and afford things and everyone else is squeezed.

Man, when I moved down to Argentina I though "the US is becoming like Argentina, so trying to live the American dream in Argentina is just crazy enough to work" but I had no idea the US would be tracking correlates so directly. The only real differences as far as I can see is the reserve currency and the army, huge differences, but for that reason nobody has prepared with debt-free holdings and a more horizontal ag base like you have in Argentina.

Anonymous said...

In the very early 80's, Mexico had a huge peso devaluation as well. Had held steady for years around the 1:20 mark, then within a month, was reduced to 10% of the value it formerly had. Then another steep decline. They had to drop a zero (at least) and basically start from scratch. Fine for the well to do, but the poor who could barely afford tortillas, beans and rice - devastating.

Anonymous said...

" the world will not spin on, unlike when Argentina defaulted. Civilization might come to a screeching halt."

The consequences could be extreme, but this is putting the cart before the horse. Markets don't MAKE reality, markets REFLECT reality. The second after the dollar is devalued to 1 renminbi, there are still 300 million mouths and pairs of hands. Civilization is not going to halt.

Sure, there can be temporary and artificial disturbances in the normal channels that could at worst cause things like famine...but it's not going to cause the mountains to cast themselves down on us.

David said...

The theme of your blog might as well be "don't be surprised when life goes on."

That we approach the *recognition* of a trend that has changed is indisputable. The specific form that recognition takes is the stuff of HEATED debate.

To me, the key is that the trend change is NOT an event, it's a process. It's silly to think that people will suddenly invert what they're used to doing. Barter? Paying for gasoline with a Maple Leaf coin?

I doubt it.

Who will be made whole in the short run...and then the long run? Bankers and their depositors or those owing the bank big bucks on their mortgages, credit cards, etc.? SOMEBODY is going to get screwed. The only question is, who?

I think there isn't enough value left for anyone to get out whole. People in debt will be wiped out. People holding IOUs (like bank accounts, 401(k)'s, municipal bonds, etc.) will lose much or most because there's no way to service the payments on the pyramid of debt that overhangs the world.

Those who are early "adapters" will do fine. An early adapter today is DEBT FREE and is trying to identify and hold the safest debt instruments (the Federal Reserve Note is one, too) and maybe some precious metals (let the debate rage).

Shambhala said...

What do you mean "what if?" !!

I took a 10% pay cut last year. Along with no raises for 3 years, thats about a 15% pay cut.

I also had to PAY MORE TAXES this year of about $3100!

Screw them all. Republicans AND Democrats

falcon_01 said...

I'd be able to make it, IF my house in NC sells. It eats up a huge chunk of my income. Once it sells, I'll be able to get out of debt the ex put me in when I was in Iraq...

FerFAL said...

Sorry to hear that Falcon, seems that bad divorces are a common problem these days.


David said...

You nailed it. The D's and the R's (the so-called liberals and the so-called conservatives) are all just thieves, murderers and con artists. Their so-called "battles" are no more real that professional wrestling's, with the whole thing just theater to divert stupid citizens and let the politicians pick everyone's pockets. It's the same in the US as it is everywhere. People go into politics for the same reason bank robbers put on masks.

Anonymous said...

Of course the Democrats and Republicans are the same. They're two sides of the same coin. They simply read off the script that's been prepared, in order for us to sit back and enjoy the 'debate'. It's all bullshit. I've been telling people about the New World Order and their minions for 20 years. 20 years ago, people laughed. They're not laughing now.

Dustin said...

You can not have deflation and inflation at the same time, but you can experience both during a depression. If the usd devalues then our debts would remain the same amount. So if your mortgage is 1500 dollars it will stay 1500 dollars even though you are now making twice as much dollars because of inflation. We are experiencing deflation currently and for a short time it will cause problems. Then we will see inflation and it will be harder to buy things like food and energy but our debts will be reduced because of inflation. That is why the government loves inflation, because it wipes away the deficit.

David said...

Dustin, you can't have what people call deflation and inflation at the same time (they're *generalized* price trends). Of course you can have pockets of goods & services that buck the larger trend.

Find me a time when a country was able to inflate its way out from under its debt? Never has happened, never will. Debt is repudiated. A collapse in US dollar-denominated debt is the hallmark of a deflation. The problem is that private debts do not disappear. They are still in force even as money to service them becomes scarcer and scarcer, until all non-pristine debts are defaulted upon. That's the bottom of the depression and only then can a currency hyperinflation occur.

So to answer you, a deflationary collapse in credit ushers in lower prices, but the scarcity of cash makes things less affordable (the same effect as inflation, but in a much more painful and visible way).