Gold News

Burning and Looting

Riots in Paris, 50% inflation in Argentina...

YOU think you've got problems? asks Bill Bonner in his Diary of a Rogue Economist, reporting from Gualfin, Argentina.

First, a report from a friend in Paris:

"We were out for a Saturday stroll and rounded the corner to a police van that was getting smashed fighters, or protestors, or idiots with nothing better to do (not sure which)...

"I went closer to get a picture, and just then, the police came flying down the street behind me and the crowd scattered, but not before someone hit the smashed-up police van with what must have been a Molotov cocktail."

Ostensibly, les gilets jaunes (the yellow vests) were protesting a government tax on fuel.

But as our friend reports, "Nobody knows what the heck they're protesting anymore." in Argentina...MercoPress reports:

"Inflation rose 3.8% in February, the National Institute of Statistics and Censuses (INDEC) said, as President Mauricio Macri struggles to bring down prices ahead of key national elections this year.

"The rise marked the second straight month where inflation has accelerated, underscoring the challenge facing Argentina's leadership who are battling to stem a slide in the Peso, rein in inflation and dig the country out of a recession [...] The February inflation increase, the sharpest since October, took 2019 year-to-date inflation to 6.8%, and rolling 12-month inflation in the month was 51.3%, INDEC said.

"Fueled by a weak Peso, consumer prices in Argentina rose 47.6% in 2018, which analysts said was the highest annual rate in nearly three decades, hitting the country's spenders as wage growth failed to keep apace.

"Earlier this month economists raised their forecast for 2019 inflation to 31.9% from a previous estimate of 29.0%."

"Thank God we don't live in Paris or Argentina," you might say to yourself.

But that's just the point; you may soon. Herewith, one observation and one prediction.

First, it's not so bad. Most Parisians had barely any idea there was smashing and looting going on downtown.

And here in Salta Province, Argentina, even with 50% inflation, life goes on. Our steak was juicy good last night. (A dinner for six, two bottles of wine included, was only $120.) Our hotel room is clean. The traffic still flows. Fifty per cent inflation is not the end of the world. It's a challenge; but it creates opportunities, as well as disasters.

Second, we suggest a visit to both locales.

In Paris, you can learn how to dodge angry, violent mobs. And in Argentina, you can learn how to dodge rising prices.

Our prediction is that both skills may one day prove as useful on the banks of the Hudson or the Mississippi as they are now on the Quai du Louvre or in Puerto Madera.

The reasons for the violence in Paris are obscure and largely unfathomable – even to Parisians. So, let's turn to Argentina.

How did Argentina come to have 50% inflation? Its central bankers and politicians are no dumber than their American counterparts. Its politicians know how to get votes. And the insiders here know as well as elites everywhere how to get into the first-class seats.

What went wrong?

Government, as you've seen us remark on more than one occasion, is many things to many different people. It is a source of power for some. It's a source of protection for many. It claims to keep planes from colliding and make sure a quart is actually a quart and not a liter.

It is thought, by some, to boost innovation...and to guide the economy by others. But almost all those things are simply collateral to its basic mission: providing a way for the few to rip off the many.

Taxes, tariffs, regulations – they're all ways to transfer wealth and power from the common man to the elite who control the government.

But there is an inevitable tendency (driven partly by competition among the insiders themselves) to overdo it.

Rather than satisfy themselves with what they can squeeze out of the turnips in honest taxation, the feds borrow from the future. And then, they bend the financial system – by suppressing interest rates, for make it easier to finance their deficits.

Soon, everyone is deeply in debt. And then, the system arrives at "peak debt," when the economy no longer produces enough revenue to pay the interest.

All debts must be repaid, sooner or later, one way or another, either by the debtor, the creditor...or someone else. No exceptions.

In the case of government debt, there is no question of the debtor paying. The feds have no money. They talk about "stimulus" and "growing our way out of debt."

But when debt is increasing twice as fast as GDP, as it has for the last 30 years, "growing your way out" is not an option. Also, as the debt burden increases (along with the phony-baloney price signals that created it and the jackass financial shenanigans that accompany it) GDP growth goes down, not up.

Current real growth is only about half what it was 30 years ago...and may actually be zero.

And no, the Trump tax cut didn't really change much. The latest numbers tell us that trends of the Obama era continue as they were before...but worse.

The trade deficit, for example, was $531 billion in the last Obama year. Now it is almost $900 billion. Manufacturing is still below its level 12 years ago.

Sales got a little bump from the tax cut, but now they're falling back to trend, too. Single-family-home sales have fallen since DJT took office and are now back to a level set in 1991...with the lowest household/home sales ratio ever recorded.

Hiring collapsed in February (possibly a fluke). And GDP growth for this quarter appears to be flatlining.

Which is to say...there is no chance the feds will pay the debt with increased tax revenues. So, who will?

Welcome to Argentina. Stay tuned.

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals