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Nobel Prize winning economist Simon Kuznetsk once said there are four kinds of countries: developed, underdeveloped, Japan and Argentina. With respect to Argentina, the citizens are literate. It’s a nation blessed with many resources including rich agriculture lands, lithium deposits and fossil fuels. It has an export-oriented agricultural sector, and a diversified industrial base provides employment. Yet, it also is battling 109% inflation that could hit 130% by year’s end. The central bank’s interest rate did equal an “eye-watering 97%.” Because so many of its transactions are cash based, a new $2,000 peso, worth about $4 US dollars, was recently issued to un-clutter over-filled bank vaults. Forty percent of the population lives in poverty, forcing half of its younger generation to immigrate elsewhere. The country has defaulted a historic nine times on its debt, three times since 2000.
To make matters worse, only 20% of the nation’s employed hold jobs in the private sector, forcing extreme government spending for social and other support assistance. The untenable economic reality forces one worker to pay the bills for four other eligible workers. The reality is that the government is a consumer and not a producer, therefore the key to getting out of this mess is private sector jobs. No one could argue against those questioning the country’s ability to grow itself out of the debt obligations still left from the last default, especially with no sane entity wanting to hold its volatile inflation riddled currency.
An election between the seated leftist, Sergio Massa, and his outspoken anti-establishment conservative opponent Javier Milei has given Argentinians an opportunity to restore some level of sanity to what a vibrant economy should be. That election happened last weekend and thankfully Milei won in a landslide. He has his work cut out in what will be a very difficult and contentious task.
Debts and unrealistic absurd policies can bring the same negative consequences upon any country. In the past few years, the U.S. rang up an unprecedented debt now reaching over $33 trillion, equaling a whooping trillion-dollar annual debt service. In the past two years, Washington policies encouraged workers to stay home, allowing them to earn more for doing nothing than being productive in the labor market. Some have said “You just can’t fix stupid!”
The result is that honest Americans suffer from extremely high inflation, even higher than the late 70s and early 80s. America’s saving grace resides with its world currency status, a status that is now being challenged by several other economically powerful nations. We can’t continue this irresponsible direction of incurring destructive debt without dire consequences. Elections have consequences. We must be wiser in 2024 and elect representatives – Republicans and Democrats — who will actually do something to curb our runaway spending instead of just giving lip service to spending reductions. Where incumbents fail to act, they need to be replaced by people who will.
