Monday, November 7, 2011

What’s of value right when the economy goes to hell?

As Greece and Italy go to hell in a hand basket, down here in the Banana Republic of Argentina we’re seeing a déjà vu of the 2001 collapse. The government imposed a “green” corralito by which through one excuse or another the American currency is being unofficially but effectively banned. The US Dollar was the way in which Argentines protected their savings from the even more volatile funny money that is the Argentine peso. With the new restrictions, before buying dollars you have to be authorized by the AFIP, the Argentine version of the IRS. Through a complex system that not even themselves understand, they check how much money you earn, what are your expenses, how much you may have saved based on that, and only then do they somewhat estimate what you should be allowed to buy. There’s people that own big companies that aren’t even allowed 50 USD.

To close the corralito even further the banks themselves came up with their own set of rules for the purchase of dollars, simply making it impossible to buy the American currency. The only way to buy dollars then is the black market where the dollar reaches 5.50 or 6 pesos per dollar, against the official rate of 4.26 pesos per dollar. In the black market caves and “arbolitos” (arbolito=tree, named based on them selling/buying the green USD) there’s been several reports of SIDE agents (our CIA) closing them down, and arresting both customers and owners of the joints. Why the arrests aren’t done by the police, I have no idea. This would be the time to stay put and wait until things settle before trying to buy USD.
So yes, these are interesting times to say the least. Lots of rumors, lots of desperate people out there.  People that were just about to travel and needed dollars but cant buy them, people about to close business deals in dollars but cant get the money either. USD accounts being closed, Pesos accounts being closed as well out of fear and the too vivid ghost of 2001. Interest rates have doubled in banks in the last few days and everyone is just waiting, and I guess that the key word in today’s article. Waiting, staying put to see what happens. What happens when the economy is about to collapse, or just collapsed? Everyone waits. I saw the exact same thing 10 years ago. No one buys anything or sells anything unless they really have to.

What’s on high demand during times like these?? Nothing.  Nothing at all. All the survival BS about this and that “being worth its weight in gold!!” its proven yet again to be false. At least during the peak, the initial days, everyone stays put.
The food you buy at the supermarket, you go to work and school, pay your bills, but other than that you don’t spend a buck unless you have to. The only thing I do notice is that regarding imports, if someone needs something that was imported in USD and they can buy it in pesos, they do so quickly speculating the USD will keep going up in price. Keep that in mind and close deals quickly if you think a devaluation would work against you. A tell tale of what happened was seen a few months ago when imports stopped rolling in.
Other than that what people really want is dollars, the only way in which you can escape the peso. Gold and silver being marketed in USD are also being restricted. I posted about this being a good way to save what you had in an Argentine forum, I hope at least some people took advantage of that loophole during the couple days that it lasted.

The lesson here is simple: For Argentina its USD, that’s what we’ve always gone to during complicated times and that’s what the government always restricted right before everything goes to hell. For US its going to be gold and silver, that your version of what the dollar means for us. When the government starts looking for ways to directly or most likely, indirectly restrict the purchase and sale of precious metals, that’s when you know the S is just about to hit the fan.
The Argentine government just created a new department, specifically to hunt down “financial criminals”, you know, old ladies that try to buy a Benjamin or two.
Little lessons from Argentina boys and girls, please don’t EVER allow this sort of thing to happen in your country.


Blog Author said...

I'm wondering, what will the people who have saved gold and silver be able to do if they are not allowed to sell (i.e. spend) it. I've saved a little bit in silver but if they make it illegal to sell, and they're searching people leaving at the border and taking their PM's as well, I might as well have wasted my money.

The only thing I can think of would be to either melt it down and make jewelry or belt buckles or buttons or something; and possibly plate it with copper or paint it so that it doesn't appear as what it is; or to start investing in something else, like gems. Or, just buy things you know you'll need, like pantry food, ammo, plywood for your windows, water filters, and the like. But if you want to leave, you're stuck with some kind of corralito or other forms of border guard banditry.

Maybe the only wealth that will not be taken away is know-how.

Kuba said...

This is shocking. In Poland during communist rule people were also restricted from buying US dollars, also there was a black market and from time to time the police made arrests of the traders. But never the customers - and this was communism and not a supposedly modern democratic state like the media tells us Argentina is at the moment!

gaga said...

In Poland Dollars were not banned, on the contrary the Government opened Pewex shops to collect them and give Poles access to western consumer goods.


Kuba said...

I did not write they were banned, merely restricted like in today's Argentina, with specific limits regulating how many dollars one could buy legally. Those limits were fairly low, otherwise the black market for trading dollars (operated by "cinkciarze") with exchange rates much above the official ones wouldn't have been so prosperous, no?

K said...

How has bribery changed in Argentina? How was it back in 2000? How has it changed since then?

Anonymous said...

what are your thoughts on an Americano buying an apartment in Buenos Aires now? is this a good time to invest in one? is it safe to do this? gracias FerFal!

FerFAL said...

You coudl make a sweet deal right now on realstate in Buenos Aires if you know the market and get a good tip on someone wanting to sell. The problem would be getting the moeny into the country if its not here already. But yes, now would be the time to buy, given that the price is low enough.

Anonymous said...

thanks ferfal. i will shoot you an email and introduce myself. i found your blog today and am officially your newest loyal reader.

Maldek said...

"The problem would be getting the moeny into the country if its not here already."

Hmm how do you mean?
I can undestand the reasoning behind a coralito so the people are forced to stay with their worthless pesos.

Do they also hinder people to bring U$/Eur INTO argentina now? Why?

eduardo landa said...

I wouldn't buy, you are bringing dollars and you might not be able to get them out. If you love pesos, you can buy =P

Anonymous said...

Argentina was mentioned on two podcasts over @ financialsense.com. First one was a couple planning to tour the world for the next 12 months looking for safe havens. He said Argentina sounded good, but in Buenos Aires for example, things looked the same on the surface, but if you looked around you could see the infrastructure deteriorating all around you. Also mentioned that he had heard Brazil was very xenophobic (ie strong dislike of foreigners) whereas Chile was open and friendly.

Another interviewer mentioned that Argentina is undergoing an economic miracle after defaulting on its foreign debt which is counter to just about everything you've been saying.

BobThompson said...

Ferfal its hilarious to me that the dollar is still considered a safe place to park money. I suppose in the short term. But the dollar could and probably will collapse any year now. http://www.shadowstats.com/article/hyperinflation-special-report-2011

raz khafila said...

I just came back from Peru and Chile
and I'd take Peru. Arequipa looked good, good food, good prices and friendly people. Unlike Chile the
Peruanos speak Spanish that is easily
understood, plus Chile is expensive.
I moved out of the US 30 years ago
from San Diego, Calif and have no plans to ever return. And LA ?? you
could A bomb that place and do the world a favor.

Paul X said...

"When the government starts looking for ways to directly or most likely, indirectly restrict the purchase and sale of precious metals, that’s when you know the S is just about to hit the fan."

The IRS is now tracking gold sales over $600 (that is, almost all of them):

Kevin Li said...

Hello, Ferfal.
Unfortunately I am in Argentina right now. Have yet to get my claves fiscal to know how much USD i can convert. But before that I wondered is it still possible to get gold bar/coins here?

Deft said...

"Don't let it happen in your country?" Hehe, obviously if I could stop the government I would, but unfortunately they never seem to listen! They are doing their best to keep our good Congressman Paul suppressed as well. He was only allowed 89 seconds of speaking time at the last debate.

Anonymous said...

FerFal, if that is happening now , I would look to get out of your country. Those are very bad signs. I wonder who much longer the city will be safe.
I will tune in to you blog and web page to keep a close watch on the clamping down of the underground economy.