Joel Bowman

“Ten-to-one! Can you believe it? Ten-to-f#@king-one!”

Our friend was clearly exasperated. He couldn’t believe it.

“Ten-to-one” wasn’t the time…nor the odds he’d been offered for backing some dodgy ol’ nag down at the racetrack. It was — it is — the unofficial “blue” rate at which pesos are exchanged for dollars here in Argentina.

“Why is this peculiar?” Fellow Reckoners want to know. “Why should those of us who don’t carry Argentine liabilities worry about what’s going on south of the Pampas?”

Ah, we’re glad you asked. Think of the Argentines as a kind of canary, deep down the mineshaft of monetary mismanagement. What the Argentine government does not know about how to ruin an economy is probably not worth knowing. In 160th position, the latest Heritage Economic Freedom Index ranks the uselessly resource rich country a couple of slots above Uzbekistan…and a couple below Angola. Cristina Kirchner’s bestest buddy, the late Hugo Chavez, managed to drive his own poor nation down to the 174th spot on that list before his bilged corpus reached room temperature, narrowly beating out the centrally-planned paradises of Zimbabwe, Cuba and North Korea. In Christina’s eyes, there’s still more work to be done in impoverishing “her” people.

In other words, the Argentine state is a shining example for all meddler states…yours included. So, back to our story…

The ten-to-one exchange rate is important because it tells us (albeit approximately) just how detached from reality the Argentine government has become…and it is a leading indicator on just how detached from reality all governments eventually become. It also reveals to us the sad and sorry state of the local economy, as experienced by real and honest people, those hard-working folk who don’t hold positions in the nation’s political class.

At ten-to-one, the “blue” rate demonstrates an enormous spread over the official exchange rate, which currently sits at 5.14 pesos to the USD. La brecha — the spread — between what the government decrees and what the market realizes is, in other words, non-trivial.

We took a bottle of wine to a friend’s place a couple of nights back. One hundred pesos it cost us. At the official exchange rate, that’s a $20 vino tinto. Not bad (and a good drop it was, too!) At the unofficial rate, however, it worked out at only $10. How could this be?

First of all, Argentina has fantastic wine at any price. Your editor’s wife won’t have him spend more than a few months per year in climates that aren’t conducive to producing fantastic local wine. We go along because we don’t want any trouble…

Secondly, nobody changes dollars for pesos here at the official rate. Not if they know what’s good for them. A few blocks from where we sit is a casa de cambio that follows the unofficial rate. Everyone knows it’s there. The police — mostly corrupt and “on the take” anyway — know it’s there too. Heck! they stand right across the street, smoking cigarettes and watching people come and go…nervous old ladies clutching their purses…young businessmen converting their pay out of pesos…sweaty foreigners in backpacks who read about the “dolar blue” online and want a better rate than CFK’s goons will give them. The cerdos policias do nothing. They can do nothing. There are thousands of places around the city where people buy dollars illegally.

The whole scene is a pretty fair example of Gresham’s Law, where (simply stated) “bad money drives out good.”

As with everything here in Argentina, there is the “official” number…and then the truth. “Officially,” inflation runs at just shy of 10%. Unofficially, it’s closer to 30%. And, truthfully, it’s probably a fair bit higher again. Maybe 40%…or more. As such, Argentine savers — who are used to thieving politicians swiping their hard-earned dough — look to save in currencies their government can’t (directly) manipulate. The US dollar is the most popular choice…hence the reason it’s virtually illegal to buy them…and hence the reason for the black market premium.

When we first came to Argentina a few years back, taxi drivers wouldn’t take 100 pesos notes. They couldn’t make change. Now, it’s a different story.

“Hoy por hoy, no es mucho,” they say. The value of the peso decays by the day…and along with it goes the value of the savings and retirement accounts of the long-suffering people of Argentina.

And so, from time to time la gente organize protests and demonstrations against “La Dictadura.” They bang their pots and march up and down the streets. They gather around el obelisco, waving placards and chanting slogans. But for what? Isn’t asking the State not to steal your money a bit like lobbying the KKK to amend their unequal employment policy? Ain’t gonna happen, brother! Just as racism and bigotry form a core part of the KKK’s…ahem… “value set,” stealing, coercion and violence are defining components of the State’s genetic code. After all, if it didn’t steal from you, it wouldn’t be called “the State”…it would be called “a business,” and you’d be free to purchase its goods and services (such as they are)…or not.

“All governments engage in larceny and fraud,” observed Bill Bonner earlier in the week, “using their authority to transfer wealth and power from the outsiders to the insiders. But the clever government does so by deception… while the clumsy one does so with no pretense or excuses.”

We have little doubt that ten-to-one will soon become twenty-to-one… thirty-to-one…one-hundred-to-one and beyond. It’s in the nature of governments to steal from their people. The Argentine people have come to expect it. They march along and bang their pots…but secretly they are making escape plans. Those in the “civilized” world, by contrast, have no idea what’s coming. Our sense is, they’ll find out soon enough…

Regards,

Joel Bowman
Editor at Large for The Daily Reckoning
Follow on Twitter: https://twitter.com/JoelBowman

You May Also Like:


A Currency for the Criminal Element

Bill Bonner

Trusting in the strength of the US dollar despite an inflated money supply…

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

Recent Articles

In the Downdraft of Hormegeddon

Bill Bonner

The economist Milton Friedman didn’t go far enough when he said, “Concentrated power is not rendered harmless by the good intentions of those who create it.” Oftentimes, that power is rendered more harmful -- to the point of Hormegeddon -- the better the intentions behind it. In today's essay, Bill Bonner highlights the conditions necessary for popular delusions and the disasters they lead to. Read on...


Addison Wiggin
Health Care Costs: Still the Pig in the Federal Python

Addison Wiggin

Right now, health care makes up about 25% of the federal budget. A scary statistic to be sure... But here's an even scarier one: health care's portion of the federal budget doubles roughly every 20 years. Yikes! Addison Wiggin explains why this is and what needs to change to prevent health care from taking up half the federal budget. Read on...


Six Signs Your Government’s Too Big

Chris Campbell

Is your government too big? Find out in today’s Laissez Faire Today with six “red flags” to look out for. Chris Campbell covers everything from one ObamaCare whistleblower to the strange case of our new Ebola czar. Read on…


McDisaster: Fast Food Is Dying – Make a Killing From It…

Greg Guenthner

McDonalds stock is getting crushed right now. Shares have been in a tailspin since June. But it’s not just Mickey Dee’s. Coca Cola shares are in freefall, too. Bad news for them. But if you want to rake in a pile of easy money, it could be great news for you. See, Americans just aren’t choking down this junk like they used to. The fast food burger, fries and a Coke are just down payments on an early coronary - and Type II diabetes. And everyone’s finally gotten the message. So how can you play the trend? Greg Guenthner explains…


In the Year 2024

James Rickards

Panopticon goggles? Severe market panic in 2018? Gold confiscation by 2020? Jim Rickards' shocking thought-piece in the spirit of A Brave New World or 1984. Click to see how markets, economics, your money, gold, privacy, wealth building and more look a decade from now in the year 2024...