Thursday, August 6, 2009

The Royal Scam

Interesting graphs on the currency collapse in Argentina. Thought you'd be interested...Chuck

Here's what happened in Argentina: the political leaders are dysfunctional and infighting, paying out to their home provinces, uncaring of the enormous debt and with no reason to care so long as foreign money could be borrowed. Meanwhile the economy began to rest more and more on bubbles and speculation funded by this foreign borrowing. When the balloon went up, the insiders saw which way it was headed and got their money offshore, something like Cheney and Halliburton did the other year. Then as things devolved, ever-increasing capital controls were put in place, just like now with the US investigating “off-shore havens” and profits one might have made overseas using the premise of money laundering to chain the firedoors shut one by one.

Finally, they enforced the official “corrilito”, and soon after had an extended Bank Holiday for the 5 months it took to devalue the Peso by 73%--far faster than anyone not forewarned could adjust and react. Once every exit was chained tight, they firebombed the casino, trapping everyone inside. Even if you had thousands in stocks, bonds, and savings accounts, with the market frozen and the monthly bank withdrawal limit set at $300/mo, the little people could not pay rent or even eat, becoming “Cartoneros” garbage-picking architects and engineers, wandering the streets with their children at midnight as the nation devolved into a chaos that did not topple the ruling class.

Once all the assets in the country had been discounted a minimum of 73%, the insiders then repatriated their money and bought their neighbor's fortunes for pennies on the dollar, finding cheap, hungry, competitive labor, ready to compete with even 3rd world wages. The prudent, hard-working, and savers (the wrong people) were wiped out, and the money was transferred to the speculators and insiders (the right people). Massive capital like land and factories can not be expatriated, but are always worth their USE value and did not fall as much, or even rose afterwards as with falling debt ratios and low wages these working assets became competitive again. It's not so much a “collapse” as a redistribution, from the middle class and the working to the capital class and the connected. ...And the genius is, they could blame it all on foreigners, “incompetent” leaders, and careless, debt-happy citizens themselves.

Now I'm no genius here, but couldn't the United States do the very same thing?

What you need to do is--and bear with me here--send your best Wall St. salesmen and diplomats to China and sell them a bill of goods about how they can “modernize” with our help. The Cold War is over. Capitalism reins. You know us Wall St. types! It's all about the dollar! Have the radio scream the President sold out and sign them up to the WTO as you suck Asia into massive overcapacity and a deep, unbreakable reliance on the US and G-8 as customers while paving over the national independence of their life-giving water and farmland. Then, once they've tasted freedom and affluence, once they're unable to support themselves independently, you pull the plug not on them but YOURSELF. Implode your own middle class as above. Kill the bond markets, cause a run on your own currency, and default on the debts you owe them. Hey, it's the only thing you could do, right? Americans are just stupid, right? Wall Street is just greedy. It's all an accident, an act of God really. No one's to blame. It's classic Judo.

In a single stroke you:

a) lose the burden of external debt

b) by devaluation lose your internal debt

c) make the nation competitive as a manufacturing power.

d) scare the people back into compliance, even exultation with their low wages.

e) with the renewal of manufacturing, re-cast the power that your military rests on

f) during a time of Peak Oil, radically reduce unnecessary consumption while insuring strategic (military) supply.

g) by doing that, suck in the oil powers of Russia, Iran, and Venezuela enough to knock them off-base, first with high prices, then low prices.

h) club China into submission to the G-8 money powers again

and best of all:

i) enrich insiders beyond their wildest dreams, insuring their dominance for a generation to come.

All the right people win, all the wrong people lose.

Seeing the monetary parabola looming dead ahead after the near-miss of the Tech collapse, what do you need to insure this happens on a very tight schedule?

First, knowing this will happen, you suck in your own people by demanding—straight from the top—that bankers loosen lending standards so low even the dumbest financier couldn't believe it was prudent, then refuse to prosecute even the most blatant corruptions by mortgage originators, fraudulent borrowers, and other “outsiders”. Suspecting this will all blow up, pay yourself today in bonuses instead of later in investments.

Then, knowing you'll never repay, you jack up national spending beyond anything anybody's ever seen and go do what you want all over the world, in any country you want, with impunity.

Then you have a scare that gives you cover to set up conduits that insure all the right people have lifeboats, even if it costs $23-30 Trillion, and even if the Hoi Polloi scream bloody murder. It'll all be over soon anyway.

It was only a 3% GDP deficit that sank Argentina:


Thanks Chuck! :-)
The article is pretty accurate (no, I’m not one of the garbage picking Architects mentioned :-) )
but there are a few points though:

1) The most important one, This chart:

is absolutely fake, a shameless lie:
Every single person that lives in this country knows that.
Inflation never when down like that rather the contrary.
Today, compared to pre 2001 prices. Inflation is roughly 300%, many times up to 500% on some product, and maybe a bit less in few others, 150% or so.
But that chart is just ridiculous. We were “dollarized”, that’s why a family that today expects to maintain basic middle class levles needs 2000 USD a month, that’s roughly 7500 pesos for a middle class family. And that’s why today middle class in Argentina is going extinct. It’s impossible to keep up with the ever growing inflation.
10% inflation compared to the year 2000. It’s a joke, an insult for the poor that suffer the reality and know better, and one of the main reasons why the current administration is hated so much: The lies of the INDEC the hidden inflation that is only hidden in numbers but everyone sees when buying.

2) the idea of a booming Argentina, a well greased piece of machinery working at full power a couple years after the collapse. Not so. I’ve been saying so for years, and just now, only last week, did Christina Kirchner half heartedly recognize this, and accepted to run all our economy numbers from INDEC (the official institution in charge of it) going back to 1998, doing all the numbers again.
This happened because Argentina needed to project an image of prosperity after the crisis, to attract investors again. Guys, the economy collapsed completely like a tower or cards. No one invested a single buck, we needed that image of “ Look, a couple years after the crisis we’re back on top, come invest, come visit. We welcome tourists with very competitive prices!”
But the problem was that cooking the books in such a way means you don’t have a correct diagnosis of the “illness”. Only now they recognize this path leads to certain death.
But what does this mean? It means that people that for years trusted the official numbers of Argentina (many didn’t) don’t have an accurate picture. That’s why the part where it says :
“And a few months later, Argentina defaults on sovereign debt, for a multi-billion dollar loss to foreign creditors. A mere two years later, the country is without debt, working hard, and booming.”

It’s not true. At least for most companies I assure you, even today they struggle to keep afloat. Every business owner, small or medium will agree on this, at least 9 out of 10 will. I can’t think of more than a handful “booming” companies here. There are a few, but they sure are the exception.
We’ll have to wait for a long time until they do what they promised to do, check the statistics again and go back to 1998 and move forward form there.

3)The idea of the “insider” job. It’s only a partial truth. The IMF, and world powers, are they supposed to be poor na├»ve catholic school girls? They new what was going on. When you give money to a bunch of corrupt politicians and lobbist, knowing fully well they wont give it back, you already know what you’re doing and what you’re getting into is pretty dirty.
Gee, wish I came across one of these goodly trustful bankers that just give you a billion dollars knowing you’ll never pay back.
Did any of you ever come across one of these??
They were blowing the place up and ready to collect the pieces for a profit. More 1 USD/hour qualified workers, more governors and politicians, even the president, eating out of the palm of your hand.
Our politicians are thieves, some petty little thieves, some actual mafia, but this required some global help as well.

Other than these to points, the rest is very well explained and certainly worth reading… and learning from.



Bones said...

Did you see this? HALF of all US mortgages will be underwater by 2011.

There is no way the US economy can survive this one.

Don said...


I saw that article, but I have two thoughts. The first is that there's no telling exactly what the US economy can survive. While there are problems, and it makes sense to prepare to some extent for an Argentina-like event, I'd still say the greater probability is not for a total collapse.

My other thought is that this is the projection of a bank, and projections are notoriously unreliable. All it would take is a change of assumptions and the conclusions are out the window.

For example, if the economy continues to level off and improve somewhat that will affect housing prices. Here on this blog we talk incessantly about "the coming inflation" which would presumably prevent many houses from going under water.