Argentina in Crisis
We have decided to preëmpt our next articles to bring you some up-to-date news from South America. We are watching history made in Argentina. There are expats and potential expats who believe that what is going on in Argentina is a preview of what is ahead for the United States. They have asked us to chronicle events in Argentina as they happen.
We don’t know yet if we will do that, but we do want to bring you up to date on what is happening here and why we don’t recommend Argentina right now. We also think Argentina is an excellent illustration for our reasons for advocating the “flags theory” for diversifying and protecting assets—and personal freedom. That doesn’t mean that Argentina is off the table. To the contrary. There may be fantastic buying opportunities ahead. But we don’t know what is going to happen at this point.
There is a definite similarity in the problems of Argentina and those of the United States. But there is also a big difference.
The United States is the source of the world reserve currency, also called the petro dollar. It is the petro dollar that has for so long kept the United States out of the same ditch that these other countries are falling into as a result of their debt and their inflation.
Our sophisticated readers know that, when government or the central bank prints more currency than they are collecting revenue, inflation will result. Inflation is a hidden tax in that it reduces the value of the currency of that country, causing prices to rise. But the U. S. is unique in that, because the entire world was required to buy dollars in order to buy other things, particularly oil, the United States has been able to ship their inflation all over the world through their inflated dollars. They have been able to print money with relative impunity for that reason, whereas with other countries, printing currency beyond their means has caused debilitating inflation and pain.
Argentina claims an inflation rate now of around 9%. As with the United States, the people in Argentina are not fooled. The rate of inflation in Argentina is well above 9%. Some people here claim it is as high as thirty percent. The people of the U.S. have been spared that fate—so far—because of the petro dollar.
The dollar became the petro dollar when President Nixon made a deal with Saudi Arabia that if they would require payment for their oil in U. S. dollars, the U.S. would protect Saudi oil fields from anyone who posed a threat—China, Russia, Israel—whoever. Slowly similar agreements were made with other ruling powers of the Middle East, thus forcing countries to buy the dollar first in order to buy Middle East oil. Thereby the value of the U. S. dollar became tied to the value of oil.
But that is now changing. Americans believed they were sending their boys to bleed and die in Iraq because of human atrocities supposedly taking place there, and that Iraq had weapons of mass destruction. The real reason, in our opinion, was that Sadam Hussein announced that he would no longer accept U. S. dollars for his oil. When that news broke, several financial analysts predicted that Hussein was not long in power and perhaps not long for this world. And, for whatever reason, they were right.
Now South American countries are beginning to trade among themselves in their own currencies instead of the dollar, and Iran is forming a bourse of currencies to accept for oil and the dollar is being shut out. Is this the reason the U. S. is sending battleships to Iran and revving up for a war with Iran? You be the judge.
We think that the tendency to shut out the dollar is unstoppable. Other countries understand the dynamics of all this and probably the U.S. dollars around the world are headed home soon, which is going to cause the same inflation as that experienced in some of these other countries who did not have the same advantage.
So how do both citizens and governments react when inflation starts coming home to roost? Argentina is in crisis and that crisis is escalating. The government recently began to restrict movement of currencies. They have set a false value on the peso. Today it is set at 4.685 pesos per dollar and the amount on the gray (black?) market is closer to 7 pesos. If you have physical dollars you can sell them easily at the higher rate. Money changers paying the higher rate are being jailed, but it doesn’t matter. There will be someone else to buy dollars. It is not difficult to understand Argentina’s scrambling for dollars, since the country is struggling to pay their debt to the International Monetary Fund. If the value of the peso is allowed to go to 7 per dollar, in effect, that will vastly increase the number of pesos it will take to pay the debt. Argentina needs the dollars to pay the debt.
In order to get possession of dollars here, through official channels, you must first get permission from the bureaucracy. You must explain the reasons you need dollars and you will be approved—or denied. For those approved, there is a $150 a day limit for travelers leaving the country for vacation or business. We have reports that expats have returned to the U S., carrying their money in pesos because they were not able to change the pesos to dollars before leaving Argentina, only to be told by U. S. banks that they were not accepting Argentina pesos.
We do not know if all U.S. banks are refusing pesos.
We know Argentines here who want to leave the country, but they can’t if they don’t have money held outside of Argentina. If everything is in Argentina, they have a problem. We are told that they are searching people at the airport and that dollar-sniffing dogs are checking luggage, not only at the airport but also at the ferry from Argentina to Uruguay.
Almost every day, it seems, Argentina passes another law to try to control the currency. Imports and exports are severely limited to the point where we are not able to buy printer ink for our printer because Staples reports they can’t import it. Quite a few foreign-owned stores are closing, particularly name brand stores, because they are not able to import their products–we presume because they have to pay for the imports in dollars.
Last year, before all this began, Argentina took over the retirement funds of all their citizens.
Now let’s move on to the U.S. Is the U. S. making any similar moves?
Well, the concept of taking over the IRAs and 401ks has been on the table in Congress many times in the last few years. Bob Chapman started warning about that six years ago and saying to start drawing out your retirement money. If you leave it in your 401k or your IRA, eventually you will lose it. Get it out, he said.
Most expats and potential expats know that banks that are willing to serve U. S. citizens are getting fewer and fewer. Why? Because they don’t want the U S. citizen’s business? Of course not. They don’t want to deal with the U. S. citizen’s government. The U. S. is making so many reporting requirements on banks that serve their citizens, and they have the military to back them up. Some banks are claiming that complying is just too costly. So they agree to file all the necessary information on U. S. citizens, only they see to it that they have no U.S. citizens to report on.
Fortunately there are still banks that will serve American citizens, so don’t despair. But the field is getting narrower.
Then the United States is putting more laws into effect that make it more difficult to move currency outside the country. We have reported them here in the past so will not go into detail again, but as of January 1, unless you are transferring into an institution that is compliant with U. S. regulations, you will leave behind, with the I.R.S., thirty percent of whatever you are transferring out. At this point you can collect it back when you file your income tax so long as you do not owe it in taxes. We have stated before that we consider it worrisome that there is also a proposal on the table in Congress to charge a thirty-percent exit tax on money taken out of the U S. So far it has only been considered. Nothing more.
In addition, the US is starting to make rules allowing taking away passports from citizens for various reasons. Right now the rules seem to make sense, but once the law is in effect, all that is necessary is to expand that law and freedom of the average citizen to move about at will could be severely limited.
Gerald Celente, one of our favorite trends analysts, has explained that predicting trends is not difficult. He says that you can easily see future trends by observing current events. We are looking at current events and feeling ever more justified in our “flags theory,” whether it is two flags, three flags, four flags, five flags or six flags, depending on the capital assets a person needs to protect. Most Argentines have learned this from hard experience. They have accounts in Uruguay, Switzerland and elsewhere. They keep only enough money in their own country to pay bills. Argentina doesn’t like it and is trying to get Uruguay to agree to report on Argentina citizens who open accounts in Uruguay. We think that what we are observing in Argentina adds impetus to our belief in planting flags in different jurisdictions to diversify risk during this turbulent time in history. By planting flags we mean that citizenship is in one country, bank account in another country—or several accounts in different countries, depending on assets–business structure in another country and live in another country.
There are Argentines who live in Argentina but have citizenship in Spain and bank accounts in Switzerland. Today those people are free to come and go as they choose.
Some people think that Argentina is a laboratory for what is ahead in the United States and that if we watch Argentina we will have an idea what to expect elsewhere. Whether or not that is the case, it seems clear that the person who watches the trends and acts early is most likely to suffer the least pain from the turbulence that almost surely lies ahead. Have you taken the steps that you need to take? Are you ready for whatever comes?
Copyright © 2012 Four Flags Journal, All rights reserved.
Dear Arlean, I have being living in Argentina and working in the Argentine Agribusiness for more than a year now and all your facts are pretty relevant. I am also writing on the Argentine economy and would be glad to exchange a couple of ideas with you.
Feel free to drop me a mail and I ll send you my articles.
Un abrazo
Clement
Hi Clement, I do publish articles submitted by other people as you know if you looked through the site. I’d be very interested in your take on the economy and possibly readers would as well. Also agribusiness. Great subjects. I’ve emailed you. Thanks.
arlean, i also listen to andrew guase (monetary historian) he says with the development of flash trading and front running of trades by the computers closer to the final trade that… when you log in to your acct (any acct) and see the money there???? well when you log out then someone else gets to look at that money as though it was their own just like you did.
my option is to have nothing not one thing in paper except for my mortgage as andrew says the money is just too cheap to pay off (3 /1/2%) compared to real inflation. then you can do other wiser things with your free capital. gotta buy my self a little chakra first before i am out 100%
good work here Arlean
That’s interesting, Rex. Thanks for sharing it. We haven’t published a lot about the States since we focus on South America but the same risks exist there as well in our opinion. My goal is pretty similar to yours!
Arlean, I realized last week it is “go time” for my family. It only took an hour to figure out where we are headed. 🙂
I have read your posts on the forum, and only just now learned about this website. What a treasure! Thank you for your hard work and generosity. I will read every word. Looking forward to introducing you to my beautiful wife and children in the near future.
Be well !
Andy
Andy, I look forward to it! Thanks for the kind words. Don’t hesitate to be in touch.
There are many other issues going on behind the scenes that may dramatically affect the financial landscape, world wide. The U.S., having the world’s reserve currency and dictating policy has angered many nations. Those nations are stealthily working overtime to remove that advantage. For more insight in what is occurring, you might find some enlightening information from analyst Jim Willie, who seems to have very good sources of information and has been ahead of many others for a long time. Time will prove him right or wrong, but being aware of what he is predicting might give you an edge recognizing it and making timely preparations for it. http://www.silverbearcafe.com/private/09.12/knells.html
Thanks for the suggestion, Nick. I’ve read Willie a few times and always liked him.
Arlean,
What a great site you have here, I really enjoyed spending some time looking over the material you have put together, well done !! I will definitely try to read more as I get the chance.
The one thing that really caught my attention was your assessment of the troubles in Argentina and the similarities it has with the U.S. We must read many of the same writers, including Bob Chapman and Gerald Celente, as many of your thoughts echo my own. I will be in Uruguay for an extended look around starting very soon, but will try to keep up with your articles. Thanks for the interesting information,
nICk Beason Oklahoma
And thank YOU, Nick, for your kind comments. They mean a lot. And yes, those are two of our favorite analysts.
So glad you decided to join our community and I hope to meet you when you are in Uruguay. Be sure to arrange to
attend the Sunday afternoon lunch at Fellinis. You’ll have a chance to meet and visit with a lot of expats there.