What it's like to live life not trusting your bank or your money

Now that we are seeing inflation and serial bank failures in the U.S. with few prospects of any improvement so long as Joe Biden is in the saddle, perhaps a look at what that's like when the experience is extended is worth the trouble.

Emily Stewart, at Vox of all places, has written a brilliant, yes, brilliant, piece describing in minute detail just what the hell that kind of living is like. What is it like for a modern economy and a first world lifestyle to go the way of, well, Argentina? She describes it from a recent trip very, very well. 

It all kind of looks the same as here. It's first world. People have kitchens and electricity and flush toilets. They wear shoes, go to school, and speak English. But it's not the same, and the changes creep up in the manner of the boiled frog -- until they become complete lunacy around the issue of money.

The only thing missing, and perhaps it's outside the scope of her piece, but it's very critical, is where that kind of economy came from. Hint: We know it well.

Stewart begins her piece out with this:

For those unfamiliar, the ways people in Argentina navigate the day-to-day economy can sound wild. When you don’t think you can trust the bank, the currency, or anybody in charge, things can get pretty weird pretty fast.

Amid super-high inflation, people can’t bet on the value of the Argentine peso staying stable, so when they’re paid in them, they spend them fast or convert their money to American dollars — it’s unwise to keep your money in pesos for too long. The government limits how many US dollars people can buy at the official exchange rate, if they’re allotted any at all, and so they buy them at a much higher black market rate, called the “blue” dollar. It’s about double the official rate — at the moment, the official exchange rate is around 200 pesos to a dollar, while the blue rate is around 380 to one.

“The Argentine economy has taught the people here not to trust in institutions in general but also not to trust in one of the central institutions for the functioning of the economy, which is money,” said Santiago Cesteros, a research fellow at the University of Zurich and former consultant at the World Bank.

Yep, I remember that well. Like Stewart, I've spent time in Argentina, too -- 20 years ago -- listening to people to the extent that people here have mistaken me for Argentinian, and Stewart brought it all back.

Nothing has changed there -- which is exactly what she notes at the bottom of the piece.

There’s a saying in Argentina that if you leave for 20 days and come back, everything’s different, and when you leave for 20 years and come back, everything’s the same.

When the money starts devaluing, the locals turn to dollars, not pesos. What we might turn to is unknown, but we are starting to see weird stuff like gold and crypto as that kind of substitute.

More important, whatever currency they have, they keep as much out of the banks as they can where the government can get its hands on it, one way or another. They called it "colchon" bank, or, mattress bank. That money is stored in houses often under mattresses instead of banks, which leads to a lot of home robberies, and organized gangs who do this. Nice way to live, especially when the prosecutors no longer prosecute crime.

When I was there, during the meltdown of 2001, people couldn't get their money out of banks much at all. I had plenty of money in my U.S. account as a foreign visitor, but no good way of getting it out. Every day, I had to stand in line at the central bank to get $35 worth of pesos out. The lines were long. 

But well, there were a lot of demonstrators targeting private banks in downtown Buenos Aires. I recall how one wore a toilet seat around his neck to express the sentiment that his nation's money had become garbage and the banks were somehow to blame. I recall people with hammers smashing bank boarding, and windows of banks having big spider webs of broken but still intact glass, or sometimes with shards of broken glass all over the sidewalk. I remember the graffiiti on bank walls, even storied old institutions from Argentina's belle epoch era. Banks were the bad guys, as the politicians told them.

And spending the money under an inflationary regime?

Consumers try to buy things on long installment plans, knowing that over time, inflation will mean the payments they’re making on their televisions or laptops will amount to the cost of a pair of jeans or a cup of coffee. (In turn, retailers cut down on just how many installments are allowed.) Many businesses offer discounts in cash, the tacit agreement between seller and buyer being that the sale perhaps isn’t being recorded and therefore won’t be taxed. Banks offer fixed-term deposit accounts that pay annual interest rates of 75 percent and may still result in account holders losing money. The peso has a multitude of exchange rates, including for the World Cup in Qatar and for Coldplay tickets. Workers and unions are consistently in search of higher wages to try to keep up with skyrocketing prices, leading to frequent pickets and protests and a sense that it’s just never enough.

“Knowing that inflation has very negative consequences for the medium and long term, for most people, it takes away the opportunity to save,” Hora said. “They can’t plan for the future, they have to live in an eternal present.”

Ah, strikes. Strikes for higher pay and unions leading them, soon to become a way of life. When I was in Argentina, the entire postal system was on strike. I recall posing for a picture with striking workers.

Which is a miserable way to live, but people learn to deal with it, and even consider it 'normal' as Stewart notes.

Stewart is very cautious and humble in not attempting to parallel Argentina with the U.S. because no nations are exactly alike, and she is right to be careful. But that may be why she didn't want to take her piece any further than she did, which was to look at the cause of the devaluing currency, the broken banks and the inflation, which all have the exact same cause, and which no Vox writer would ever be able to say out loud: Government overspending.

That has been story one for Argentina, beginning when Juan Peron spent the nation's gold reserves to succor the descamisados, and then turned to money printing to pay for government programs and projects. All this created too many pesos chasing too few goods, triggering inflation, monster inflation, which started small but soon snowballed. After that, the central bank hiked rates to drain the excess currency out of the system -- and that brought the bank meltdowns.

In Argentina, they shut the banks to prevent people from getting their money out, because they couldn't continue to print money which is what the Biden administration is still doing, effectively turning to confiscation of bank accounts (and during a later crisis, the country's private pensions, promising all savers "a guaranteed income" of their determination, and never mind about the inflation). Years and years of this drove the money into mattresses -- or to bank accounts in Uruguay, which is a ferry ride away from Buenos Aires. A few years ago Argentinian officials responded by bringing out the money-sniffing dogs to catch miscreants trying to hold on to their own money.

Government overspending is the root of all three of those plagues making Argentina's economy, well, Argentina's economy. Corporate state activity, where the government puts its hand in the private sector, complicated things further, preventing the economy from growing its way out of its fiscal, bank, and monetary crises, except in commodities, where those gauchos out on the pampas eating their meat with knives were deemed too unimportant for the government to bother to regulate much. That part of the economy grew, while the regulated part did not. Juan Peron, after all, was a big admirer of Benito Mussolini and his splendid (to him) innovation of facism.

Sound like any place you know? It does to me. Joe Biden has tripled our national debt and proposes one gargantuan spending package after another. He constantly yells about taxing "the rich" to pay their "fair share" even though he's used that line multiple times in the past and he's never satisfied. He has a fundamental disconnect with the reality that government spending is the fast track to an Argentina-style economy. Like bankruptcy, inflation comes gradually, then suddenly, to paraphrase a statement attributed to Ernest Hemingway. After the inflation comes the rate hikes, and after the rate hikes come the bank meltdowns, and after the bank meltdowns come the government takeover of banks -- as we have seen with Silicon Valley Bank -- always benevolent of course -- and after the government takeover, the confiscations of savings. Seems we're right on the next canoe heading for those Argentinian falls, and the fall for us could be a big one if Democrats manage to entrench themselves into a one-party state by the next election.

Image:  Pixabay / Pixabay License

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