Argentina Finacial Crisis Tells The Real Story

What is happening in Argentina is telling the real economic story. Argentina is truly the Canary in the Coal Mine. The 1998–2002 Argentine Great Depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. This, however, is not their only financial crisis. Argentina has had serious financial crisis in 1930, 1955, 1976, 1989, 2001, 2014 and now. They can not catch a break.

Argentina, by now, should be an expert on currency crisis. In a way they are experts. Up to date, they were doing "everything right" in terms of economic supervision. The Peso has lost more than 40% of its value against the US dollar this year to date. They recently requested an emergency $50 Billion Dollar loan from the IMF to restore confidence in their Peso. They have the highest rate of inflation out of the G20 member nations despite having the highest interest rate on their government issued bonds. Offering a high interest rate is supposed to ward off a lack of confidence with foreign investors. Why is this not working?

Argentina has been cooperating with the United States. So the State Department and the Federal Reserve (and other Central banks) are not "punishing" Argentina like it is with perhaps Venezuela, Turkey and Iran. No sanctions are being applied towards Argentina. So why the decline in their currency?

What we are seeing is that most countries can not pay back borrowed money that was taken out in U.S. Dollars. Since the U.S. Dollar has risen it has greatly increased the pay back amount in other countries currencies. When many of these loans were taken out, the U.S. Dollar index was not as high. In other words, the dollar was not that strong but now it is. Yikes! Now it is going to cost more to pay back the borrowed money.

The real issue is borrowing money in the first place. Borrowing money is really just kicking the can down the road, isn't it? If a nation needs to borrow money, why? Does that not mean that it can not afford what it wants now? So how does borrowing money today mean you will every be able to pay it back tomorrow? You can't. What should happen is a government should use the word NO. No we can not afford this government entitlement. No we can not afford this Naval Battleship. No we can not afford to build this new ball park. Get the picture? NO governments are living in fiscal reality. They are not living within a balanced budget like we have to.

Do I go out and purchase a new F 250 4X4 pick up truck at a price tag of $55,000.00? No I can not afford it so I drive a 260,000 mile 1996 F150 4X4 that is paid off. Governments, you need to do the same thing. Since governments do not govern using balanced budgets and fiscal responsibly, they will always have crisis.

Argentina is the beginning of a long list of crisis coming. There is no way out of this. Suffering will be great. There is no sugar coating this reality. My advice is prepare now. Do not look to government for help, they can not provide help. They are drowning financially themselves. The dominoes are falling. Look for the economic failure to visit your community and country soon if it is not already happening. This global economic tsunami will be like the relative who never leaves, look out.

image from: icrindia.co.in