My mother’s side of my family migrated to Argentina from Italy in the aftermath of WW2. At the time, Argentina was the 3rd-largest economy in the world and was attracting many migrants, especially Germans and Italians following the economic mess of the war. It’s a country with great natural resources and incredible weather, but a deplorable government that cannot be trusted with savings.
My mom tells me stories of the days where she would raise prices multiple times per day at their local store because of hyperinflation.
Imagine receiving a check for services rendered or products you supplied, only for the purchasing power of the funds to evaporate on the way to the bank to deposit it into your account. This would happen to my mom because of a rapidly collapsing currency, and you could imagine this sort of firsthand experience would leave a lasting impression.
Not to mention having to go through what were essentially bail-ins, where the banks would freeze the depositors’ accounts to prevent a run on banks and then hyperinflate the currency. It’s no wonder my grandfather would stash some cash under his mattress until the day he died.
Argentina has been riddled with economic cancer for decades.
Most people can’t fathom this sort of scenario because of the historical “relative” security of the dollar and other currencies.
And as Zero Hedge reported, breaking news out of Argentina was that their yields rose and hit 40% in ongoing economic ruin. This is, by no means, a normal situation.
“The Central Bank of Argentina (BCRA) just hiked its 7-day repo reference rate to 40.00% – up a stunning 1275bps in a week – in a desperate attempt to stall the collapse of the peso (and ARG bonds) this week.
BCRA hiked three times in a week:
- 4/27 +300bps to 30.25%
- 5/03 +300bps to 33.25%
- 5/04 +675bps to 40.00%
The central bank said it will continue to use all tools at its disposal to avoid disruptions in the markets and guarantee a slowdown in inflation. The bank is ready to act again if necessary, it said in the statement.”
To what extent does the government need to compensate people to get them to purchase their underlying debt that is backed by their worthless fiat paper? In Argentina’s case, it’s a rate at the tune of 40%.
Because of severe inflation, massive fiscal and trade deficits, and a history of unpredictable draconian government actions, people are mortified to even consider Argentinian assets.
Just like in any other situation to meet the demands of the market, if something isn’t selling, you either have to drop the price or boost the contents of the offer. In the case of bonds that investors don’t want, it’s a function of paying investors a higher yield. So put plainly, the Argentinian peso/bonds became so unattractive that the government needed to pay out in a big way to meet the market demands. And it’s a sign of how bad things have gotten.
This is another reminder of counterparty risk when it comes to wealth and savings.
Many people ask me where my deep-rooted beliefs stem from in limited government, freedom, sovereignty, etc. I think it was just being close to the spigot and growing up here in the U.S., hearing stories of what the imperfections of government could look like from my mother through the years, and hearing ongoing news of currency problems out of Argentina constantly reinforces my beliefs.
I will revert back to my last address to everyone: no savings vehicle is guaranteed, but because of that, it leaves you no responsible choice but to diversify and stack the odds in your favor.
Big government is not inherently good, and it’s fundamentally cancerous. Power to the people in wealth accumulation through hard assets, decentralized wealth storage vehicles, and decentralized flow of information are the key to individual sovereignty for as many people as possible.
Chief Editor, CrushTheStreet.com