a-year-laterMauricio Macri Nears End of One Year – Photo from Buenos Aires Herald

 

We are writing today from the United States where we continue to be interested in the politics and economics. We are seeing developments here and in other parts of our world that we would not have thought possible. We report especially for those who are interested in living in Argentina. Or even living in South America. 

It looks to us like we may be at a turning point in recent history. We watched England vote to leave the European Union. We’ve seen real estate investor and builder, Donald Trump, become the president-elect in America against all odds. A year ago we watched something similar happen in Argentina where the people threw out the long-entrenched Peronistas and brought in an experienced businessman, Mauricio Macri as President. That didn’t seem possible either, at the time, but we saw it happen. It really looks as if we are at a positive change of direction.

Back around 1980, the powers announced in the U.S. that they were going to send the industry overseas where labor was cheaper and the U.S. would be the center for the smart work–the technology. It was going to be wonderful! Prices for goods would become very cheap and everything would be great.

This didn’t make sense to us. We asked, “What about the people who don’t do technology? They do assembly work in our factories. What about them?” But the experts told us we were entering a new, wonderful era where life would be good. In our naiveté we believed the experts must know what they were doing. They didn’t, of course.

We saw the factories gradually leave. In time, so many people left Michigan that cars had bumper stickers saying, “Would the last one out of Michigan please turn out the lights.” In fact, there were few cars on the country roads where we lived. You could tell the area had become depressed.

We ourselves ended up leaving Michigan as well. We were not working in the factories, but when one industry goes, then everything else in the area feels the result. It was during that period that we learned hard lessons about the principle of “unexpected consequences” when the globalists start messing with the economy. It wasn’t the people who benefited, it was the corporations.

Argentina suffered similar abuse. It seemed like the government couldn’t do anything without unexpected consequences. Argentina politicians subsidized utilities, subway fares and other things. But those subsidies must be paid for. So how do we do it?  Easy. The farmers were doing well exporting soybeans so the powers in Argentina decided to tax the farm exports upward to the neighborhood of 40%. They also put price controls in the grocery stores.

Result: Unexpected consequences.

Farmers are smart businessmen too. They were not likely to risk labor and resources if their profits are skimmed off the top in taxes. So the soybean exports fell off and good people that we knew who were exporters left Argentina permanently and moved to Canada.

There was one more “unexpected consequence.” Argentines did what the Americans have done. They threw out that administration and elected a successful businessman who immediately cut the export tax to bring farming back, cut the subsidies and allowed the peso to float to its actual value—or lack thereof.

The Argentina government expected the new business-friendly environment to result in foreign corporations coming in with $20 billion in investments in the first year. But the year is coming to an end and foreign investment did increase, and there are plans on the drawing board for more, but the actual increase this year was only about $3.5 billion. Several more companies have committed to invest in Argentina but it just didn’t happen this year.  Consumer confidence in Argentina is reported to have dropped 27%. Not exactly what was expected.

In the U.S. the president-elect Donald Trump hit the ground running before even inauguration. He is a typical successful businessman. He knows that money favors speed and he isn’t wasting any time. He has changed the minds of a number of industry leaders who planned to move—or stay—off shore.  It will be interesting to see how this change works out, compared to Argentina.

We think that both of these new leaders are on the right track. But the way we see it is that the problems in both countries are of long standing. They didn’t come about in one year and, in our opinion, cannot be changed that fast either. Add to that that we are in what may be a global recession/depression. Presidents may be able to lower corporate tax and minimize regulations in order to create business-friendly environment. But they don’t control business cycles. Business cycles are real and no president can pull a miracle out of the hat at will. He has to deal with the results of policies that were put in place many years before he took leadership and he has to cope with the normal ups and downs of the world economy as well.

Then we add the good news about the British, tired of globalism, voting to exit the European Union. This was yet another incredible decision in yet another country.

We think the going could be rough for a while but overall perhaps we’ve made a turn back in the direction of financial responsibility. But we have not changed our financial goals. We are glad to have our second passport and we suggest that you get one too. We want to keep one foot in South America, we do not want to keep cash in banks beyond what is necessary, and we still think it’s important to restrict debt and, if possible, establish more than one stream of income.

This week we appreciate Linda Wilson who responded to our comments about rising costs in Uruguay and wrote us the details of what she has found there. We are so pleased to share it with you. She offers great, practical, specific information. Linda lives in Uruguay and you can read her account of costs and other points of interest at Living and Retiring in Uruguay

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