As Rich as an Argentine

At the beginning of the 20^th century Argentina was one of the wealthiest countries in the world and by 1929 Argentina had the 4^th highest per capita GDP.  There was a catch phrase back in those days “As rich as an Argentine” to describe wealth and prosperity.  But with the stock crash, the great depression and political turmoil throughout the century the country was forced to carry huge budget deficits and borrow money from foreign banks.  In the 1970’s Argentina’s credit rating dropped and they could no longer borrow indiscriminately.  So to finance the interest on their debt and their budget the leaders resorted to printing more of the nation’s currency.  This resulted in a steady decline in the value of the Argentine peso.  In 1975 the highest denomination was 1,000 pesos, by the end of 1976 it was 5,000 pesos.  The peso hit  10,000 in 1979 and made a huge jump in 1981 when the highest denomination was 1,000,000 pesos.  The country was going through hyperinflation.

The situation became so ridiculous that prices in grocery stores no longer had prices written, but a man in a microphone would announce the prices to the customers.  These prices would increase by the hour.  Knowing the falling value of their currency, people would spend their pay checks immediately because their money would be worthless by the end of the week.

The main cause of hyperinflation is when the money supply is increased rapidly and there is no corresponding growth in the economy or as Wikipedia puts it, “Hyperinflation is a massive and rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.  This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money.”  This description has been the U.S. economic policy for decades, but has hit dangerous levels in the past two administrations.  This past Wednesday, November 3^rd Ben Bernanke and the Federal Reserve made the decision to print 600 billion dollars and buy government bonds in a bid to make loans cheaper, increase spending and hopefully stimulate the economy.  People have been questioning the Fed on this decision which prompted Ben Bernanke to defend himself on questions of effectiveness and inflation.

A persons’ opinion on policy or political matters are a result of their understanding of economics.  You have to have a basic understanding of economic principles to carry through with a responsible view on policy issues.  There’s three points I would like to cover in arguing why, the reckless printing of money, is one of the most important issues facing our country today.  Nothing is made out of thin air, there are financial consequences in what we do.  As an example, take television, is it free?  No, you pay for it with higher prices on the goods and services that are advertised between programs.  Is healthcare in Europe free?  No, the constituents pay for it with high taxes or by overpaying for a $3 gallon of gas (here) for $15 (over there).  When the Federal Reserve prints money out of thin air that devalues the money you receive from your employer and devalues the savings you have in the bank.  It’s a form of taxation.  Actually it’s taxation without representation.  Which is my first point.  The arbitrary printing of money by a private bank is a moral issue, a violation of rights.                

It’s funny to me when the politicians, economic advisors, and the media use terms like quantitative easing or monetizing the debt when speaking of economic policy.  Why don’t they call it for what it really is, we’re going to solve this problem by printing more money.  After 8 years of President Bush, the national debt hovered around nine trillion dollar mark.  Obama has increased that number to thirteen in two years.  They shared the banker bailout, Obama sent more resources to the war in Afghanistan, he had his stimulus package, clash for clunkers, refund checks for first time home buyers…. what tangible success has that accomplished (healthcare is going to add another huge amount)?  To pay for these programs the money was simply printed.  The Bush policies of easy credit and government spending led to the financial crisis.  To solve for this problem the current administration and the Federal Reserve decided to…. spend money at an even faster rate.  Hmmm…..   Some would argue that massive spending had to be done or the banking system would have collapsed.  But that is a fundamental law of the free markets.  Bad decisions must fail, not bailed out.  But using that same argument, if money was to be printed out of thin air than why weren’t home owners bailed out.  It would have reached a wider range of people who are having their assets devalued.  On an even larger point of view, I would argue that the government cannot stimulate the economy in so much as hinder it.  The ‘trickle down’, Keynesian economic policies, or massive government spending has never stimulated the economy (without creating an unhealthy bubble).  It didn’t work with Reagan and it didn’t work with FDR (the great depression was eventually turned when there was a mass reduction in taxes not more government spending) and it’s not working now for Obama.  But we keep doing it, because it benefits the elite banking system.  The people who have first access to the printed money can spend that money to buy real assets before that same money is devalued.

So what happens in hyperinflation?  Hyperinflation leads to the destruction of the currency, the value of the money you earn and the money you have.  This process collapses the monetary system, questions the sovereignty of a nation, and usually leads to an economic depression.  Irresponsible monetary policy is one of the biggest issues in our country today.  Consumer spending is what drives economies.  Creation of industries is what creates the resources for those consumers to spend money in the market place.  That is why the U.S. had such insane growth in the 60’s and 70’s.  We were the largest exporter in the world.  Everyone was buying what we were making, from cars, to furniture, to electronics, to household goods…  ‘Stimulation’ of the economy is a more complex problem than just printing more money.  It involves cutting spending.  Forty three cents of every dollar the government spends is borrowed and half of our deficit goes to the military spending.  Support to an empire with military bases in a 170 countries and fighting a two front war.  Over 2 billion of U.S. wealth is transferred overseas each day.  China is the largest holder of our debt and the largest importer of goods.  Real ‘stimulation’ is enabling U.S. small businesses to complete on an even playing field.  Manufacturing needs to come back to the country.  Tariffs on Chinese and other countries’ goods need to be increased (FYI, China is no longer interested in the dollar now, but want hard assets instead, a sign of the times).  That valve of transferred wealth needs to stop.  NAFTA/GATT has been an enormous failure.  Small business regulations need to be cut.  Taxes need to be cut, dramatically.  The market needs to open up.  Instead, we’re taking the easy way out, the stupid way out, of just printing more money.  The devaluing of our money will lead to failure and is immoral.  Because ultimately this effects every citizen in our country and there is no vote.  As Big Worm said so eloquently to Smokey in the movie Fridays, “playing with my money is like playing with my emotions.”