When Money Dies

A notation first. Last week, I wrote of the Japanese, who had saved their surplus assets in yen, and who are now losing. A few were wise. Gold sales around the world, increased by 17% in the third quarter of 2001. In Japan, gold consumption increased by 91%. Congratulations to the Japanese who were wise enough to get their assets out of paper money!

Now, as Paul Harvey says, "For the rest of the story." A few years ago, Argentina was similar to America in some ways. They were living the good life. Argentina was no "third world" country, other than the usual government corruption, which is common from the Texas border to Cape Horn. Argentina was the wealthiest nation in South America, with an average income of 11,000 US dollars. Its auto plants, and many factories, produced what Argentina consumed, and they exported as well. The Argentine government was full of corruption and headed south, so they applied to the IMF for big loans. The IMF granted loans, and one of the provisions of granting these loans (2.6% interest), was that the Argentines peg their peso to the American dollar. The Argentine politicos wanted to stay in office, as do all politicians, so rather than fire thousands of bureaucrats, massively slim down government, and balance their budget, they opted to feed at the welfare trough, as all slimy politicians usually do, rather than act sensibly. The dollars were duly transferred to the Argentine treasury, the peso pegged to the dollar, and the second peso destruction in but a few decades, began.

After the infusions, and pegging the peso to the buck, the Argentines had a very strong currency. So strong, that it was an open invitation for the "free trade" gang to begin their spiel. "We must trade freely with other nations…abolish tariffs…open borders…etc." The usual nonsense was trotted out, just as it is in America. Argentina signed on to the South American version of NAFTA, which they call the Mercosur. The Mercosur, forced members to open their doors to that fraud known as "free trade." It resulted in huge imports to Argentina, and seeming endless prosperity. Everything was so cheap, that everyone was happy. As in America, huge amounts of capital left Argentina for Brazil, Japan, Korea, China, and any nation with a currency of less value, lower wages, and resulting lower costs to manufacture, which was most of them. Argentina had high wages, strong pesos, and resultant huge imports. Manufacturing took a nose-dive, just like America, who also has high wages, strong currency, and huge imports. Factories closed, and re-opened in Brazil. America's factories closed, and re-opened in Mexico. Manufactured goods, which were formerly made at home, were imported. Ditto here. No one seemed to notice, as things appeared to be prosperous. Ditto here!

Capital was leaving with every import, just as is now happening America. America shipped out $450 billion in capital in 2001, and the figure is growing rapidly. Those Honda Gold Wings may be made in Ohio, and those Japanese cars may be made in Tennessee, but the profits go back to Tokyo. Those Chinese made Wal Mart items, which seem to be most merchandise in those stores, may be profitable to Wal Mart, but the ultimate profits go back to China. The American dollars landing in China, seem to be used to buy gold, build a mighty army, missiles, and weave the rope by which we are hanging ourselves, just as did Argentina. She is now dangling from her noose. Our hanging will come later.

Argentina's peso being pegged to the dollar, as I have said before, made as much sense as pegging the dollar to gold. An absurd comparison and relationship, even though that's the way it used to be and still should. If the dollar were pegged to gold, which is another way of saying a "gold standard," gold would probably be $2,000 an ounce, and maybe $2 billion Argentine pesos now, but this is only a guess. The point is, all currencies in the entire world, are self-debasing at the same time, but at different rates of descent. The dollar is sliding slowest, as it is the world trade instrument. The peso slid quickly, when it was discovered that they were leaving the country so fast, there were none left with which to do business. All inflationary economies notice a shortage of cash, at which point, the presses usually start, the IMF grants a loan, or both. With the welfare trough feeding, and dollar pegging, the Argentine peso began to die. Imports increased, and pesos exited. Sound familiar?

When America runs out of cash, we simply print more, thereby debasing it, but with the Argentine peso being pegged to the dollar, they didn't have that luxury. (It is estimated that 30% of foreign physical dollars are counterfeit) When a nation consumes more than it produces, disaster is in the wings. Common sense must tell you, that when your capital is leaving, bankruptcy is the result. When one siphons gas from one car to another, eventually, one car won't run! When the capital is gone, there is nothing left. America used to be the strongest nation in the world, economically, and now it is the biggest debtor nation in the world. No one owes as much as does America. Argentina, being much smaller than America, failed quicker, and couldn't print its way out, like America. Factories closed, and imports skyrocketed. Argentina lost jobs to Brazil, and just about every other South American nation, thanks to its signing on to the Mercosur, and a strong peso. America signed on to NAFTA.

Big American banks have huge "investments" (loans) in Argentina, and it will be a loss. Argentina has just officially defaulted on $140 billion in debt. The new Duhalde government vows "reforms," which is closing the barn door after the horse is gone. A London Merrill Lynch analyst says, "The banking system in Argentina is bankrupt." Duh! Naturally, their stock market is closed, bank withdrawals are limited, many dead in riots, etc. Par for the course. Argentina will probably ask the IMF for more dollars. The defaulted loans weren't repaid, and any new ones won't either, but the IMF will undoubtedly give them more dollars, further escalating the dollar's ultimate demise, at some time in the future.

The IMF has been the 3rd world's welfare source, which ultimately destroys all who partake. America's 'contribution' to the IMF is about $50 billion a year. The IMF handing out dollars, with never a chance of repayment, is stupid beyond imagining, but it has been going on for decades. No one has been helped, but rather recipients have become addicted to handouts. The IMF disbursers of the dollars, are merely overpaid political hacks, who have not a grain of common or economic sense. The IMF has been, and continues to be, an economic death potion to recipients of its handouts.

The Mercosur, corruption, and the IMF, killed Argentina. NAFTA and free trade is killing America. We don't have riots in the streets, and are still complacent and unconcerned, even though our very life-blood leaves us with every boatload of imports. Every job that leaves, and every factory that closes, is a nail in America's coffin, just as it was to Argentina. Free trade is a sham, and a deception. Free trade is a gigantic siphon from America's gas tank to Mexico, China, and Japan. NAFTA should be scrapped immediately, not another dime to the IMF, and a 50% tariff placed on all goods from China and Japan. I wonder how many Argentines knew what was going to happen, and from observing the symptoms, got out of pesos, and into tangibles such as gold or silver? Some Americans are, and it appears as if a few Japanese did. Are you? That's why I am in business.

The chapter on "Free Trade," in my book "Consequences," is a must read for a further exegesis on the subject of free trade. It's still available by e-mail, free, (no physical copies left) for the asking. I do not keep a record of those that receive them. Request at [email protected]. By all means, protect yourself, as it has been proven over and over again, that no government cares a whit about anything other than itself!