Bill Bonner

We can learn a lot from the Argentines. When it comes to messing up an economy, they’re Numero Uno. They’re Olympians of financial legerdemain and masters of the old false shuffle.

In 2001, the country was deeply in debt. The government was out of money. And the currency was losing value fast. What did the Argentines do?

First, they broke their promise to investors and savers, cutting the peso loose from the dollar. Then, they seized control of banks and bank accounts. People had been saving money in US dollar accounts in order to avoid problems with the peso. But the Argentine feds forcibly converted their accounts to pesos, just as the peso was losing 2/3rds of its value.

The next thing was to take the reserves in the central bank and use them to pay current expenses — which caused the head of the bank to resign in protest.

And finally, a few years later, they took over private pension funds — to protect them for the pensioners, of course. What are they used for? To fund the country’s deficits!

But the Argentine feds are not just scalawags, they’re the pacesetters for the rest of the developed world.

Here’s The Financial Times with a warning:

Watch out as sovereigns eye company cash piles
By David Bowers

Much has been written about how the developed world must tackle its structural budget deficits. But the link that remains to be properly recognised is that the counterparts to those ‘unsustainable’ public-sector budget deficits are equally ‘unsustainable’ corporate-sector surpluses.

The conventional wisdom believes that the current sovereign debt crisis is the result of governments having been too profligate. But it is not that governments have been spending ‘too much’ that is the problem; it is that corporates have been spending ‘too little’. Moreover, because this corporate saving is the main counterpart to the government’s borrowing, until companies start to spend again, the burden of fiscal adjustment will have to fall on cutbacks in public services and higher personal taxation. It is time to shift the debate away from talking about the fiscal position, and focus instead on whether it is a shift in corporate behaviour that is responsible for the fiscal mess in the developed world.

It is very unusual for the corporate sectors to run sustained financial surpluses. Look back at the UK and the US for more than half a century and the corporate sector has tended to be a net borrower, not a net saver.

What has prompted the recent move into financial surplus has been the decision by companies to step away from investment. Investment-to-gross domestic product ratios in the developed world are now close to the lowest levels seen in 60 years. Corporates appear to have decided to run themselves for cash, and not for growth. It is this profound shift in corporate behaviour that policymakers and politicians have been slow to spot. Until this behaviour changes — or is changed — it will be very hard to improve the fiscal arithmetic.

In the Reagan-Thatcher era, politicians cut taxes so that companies would come to their country, invest, create jobs…so that those politicians could, in turn, be re-elected. It does not work like that anymore; globalisation has seen to that. The reality is that public services used by the ‘99 per cent’ are taking the strain, while attractive corporate tax regimes are protected. Just as the trade-union barons of the ’70s failed to see the writing on the wall, so the global captains of industry may suffer a similar fate unless they put their cash to work in the countries in which they are domiciled.

The Argentines are the pacesetters for all modern governments. And The Financial Times is their newspaper of reference. It’s what the policy makers read. And the bankers.

Here, The Financial Times makes it clear what the policy makers should think: that corporations are to blame for current financial problems. They haven’t invested their money the way they should. If they’d invested more, instead of paying dividends and bonuses to rich people, we’d have more jobs…more spending and more growth.

Surely the feds can help them find ways to “invest” their money…

“I love the US…but it does seem to be going in a bad direction,” said a friend in Miami.

“You look around here and everything looks good. The grass and trees are all manicured. People are prosperous. But you go inland and it’s a different story. A lot of people in Florida don’t have two dimes. That’s why you see so many old people working. They’re taking tickets at the amusement parks. They’re working the cruise ships. They’re parking cars. They don’t have any money. They have to work to make ends meet.

“And the real estate market here is a disaster. People tell you it’s bottoming out. I don’t see it. What I see are few transactions…the market is very soft. People keep thinking they’re going to buy at the bottom. They buy…and then the bottom sinks some more.

“This is a consumer society down here. People live in suburbs…almost the whole state is suburb. They go to work. They come home. They go out to eat. They go out to shop.

“At any hour of the day, you’ll see work vans in about half the driveways. Someone’s cutting a lawn or fixing a cable TV. Nobody does these things for himself. That’s the way people live down here. They call someone. It’s money in and money out…all the time. Nobody’s got any savings…or any time. It’s go…go…go…You go to work. Then you go shopping.

“And it can’t stop. If it just slows down a little, the state goes into a slump. Everybody is checking his cellphone or iPhone or email all the time. He can’t stop either. It’s go, go, go….

“Nobody can take the time to think or even to wonder. That’s why a real depression now would be much worse than the Great Depression of the ’30s. Nobody can sit still. They can’t wait for it to pass. They can’t stop to breathe…or think…or wait for all the problems to clear up. They can’t relax and wait for an uneconomic upturn. They have to work.

“They’ve got to have money coming in…and money going out.

“You know, I’ve been reading your Daily Reckoning for years. And the one lesson I take from it is that you have to have some savings…so you’re not forced to run on the treadmill all the time. You need some money and some time. Otherwise, you’re never going to figure out what is going on. And you’re not going to have a clue of how to make any money. You just go from day to day…from job to job…from one shop to the next mall…from bill to bill…

“Scientists have done some studies on how the brain works. They found that most of what we do is reactive… Like someone throws a ball at you…you reach out and catch it. Quick response.

“But there are some things where the brain needs time. Some kinds of deep thought require, well, reflection. And nobody has time for reflection when they are on the computer or the iPhone…or rushing to get something done…

“And nobody can stop to think when they are having trouble paying their bills. That’s why you need savings. That’s why you need to have a garden, too. Nobody’s got a garden down here in South Florida. We have to go to the supermarket to buy our food.

“Of course, that’s part of the problem. If you have to work to prepare your food, you get better food…and you don’t get fat. But now you have to work to not get fat. Otherwise, food is just another distraction…like the iPhone or the Internet. You eat because it’s easier than thinking. It saves you from having to figure things out.

“You work. You drive. You shop. You check email. You call people. You eat. Money in. Money out. There’s no stopping it. No hesitating. No time to think. No time just to let things be.”


Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • The InvestorsPal

    Argentina is for economists with a sense of humor, if there are any left. It’s for anyone who likes a good drink and a good laugh. And for anyone who wants a peek at the future.

    What do defaults look like? Look at Argentina. The Argentines pulled off the biggest default on sovereign debt in history. In 2001, they defaulted on $132 billion in loans. Later, they negotiated a settlement that left lenders with their worst haircut ever.

    But at least the lenders must have had fun. They came down to Buenos Aires on rich expense accounts. They stayed at the Four Seasons. They ate steaks that were thicker than glaciers…and washed them down with a whole rio of malbec. They probably went to a few tango shows too. The visit may have cost them billions…but heck…

  • Green Chiles

    Nice article, especially the part about the American treadmill. Real thinking takes time, no doubt about it.

  • Snickerdoodle

    I am waiting for some of those luxury condos on the water to get down to the $10 to $15k range.

    I figure that is where they need to be before I will want to buy in and put up with all the bugs and snakes in Florida.

  • Herman

    A busy man is never wise and the wise man is never busy-Yutang Lin

  • Ben

    My take on the headline was (if I were a coproration and/or someone with a large cash pile) to diversify it out of the home country…lest the government grab it. Of course, that is just sensible advice for the wealthy, which I am alas among! Mitt Romney has a Swiss account? Good for him! At least he has * some * sense. Whether he’d make a good President I don’t know. For the record, the gold I bought in 2004 has done much better than my FL home bought about the same time :(

  • Le Petomane

    It’s hard to believe that the first Af/Am president would preside over this. It must be very disappointing for y’all.
    Do you recall the anticipation for the future when he was elected? It was felt around the world. Remember the Nobel peace prize? (the elites must run that as well).
    It should come as NO surprise in future that whoever is elected is ‘owned’ before they begin.
    Well this little black duck takes the time to read and has just learned that the US has delivered hundreds of tons of depleted Uranium via explosive rocket shells to Iraq and Afghanistan. To float around in the sandstorms forever. How do you like that.
    These people who now control your country have no regard for freedom, for democracy, even for human life. They are even giving up the pretence.
    Please feel free to correct me if it’s not true. I would like to believe that it’s not.
    There are three hundred million of you aren’t there?

  • Bob

    I live in FL, a bunch of superficial savages, great climate in winter though.

  • SupremeLeader

    These people who now control your country have no regard for freedom, for democracy, even for human life.

    Except Rick Santorum.

  • Little Black Duck

    Have you ever wondered why the million strong herd of wilderbeast never thinks to turn on the half dozen lions on their tales?
    If they did, the lions would be smart enough to run away. No one would get hurt but the lions would go hungry…..

  • Le Pessimiste

    Le Petomane, you are right. Sadly, you are right.

  • The InvestorsFriend


    When wal-Mart greeters were given $500,000 mortages we blamed the bank for force feeding money to those who can’t pay.

    By analogy should we blame those idiots who loan to goverments for 30 years at say 3%. When money or beer is super cheap we all tend to over indulge.

    The blame lies with both the drinker and the bar that sold beer for 50 cents and with the country and the idiot corporation or pension fund that buys government bonds.

    P.S. ANyone know where I can get money at 3% for 30 years or 50 cent beer in case I want to binge on either?

  • The InvestorsFriend


    said it may be true that hard work never killed anyone… but why take the chance?

    (That’s why I prefer to push money for a living rather than a broom or a wrench or a shovel)

  • Barter is Future

    Don’t behave like a robot! Robot can’t think, humans can stop and think this society is falling apart, then you can change and live without money, or stuffs that enslave you!

  • Deft

    If you want to read a cool first-hand account about Argentina’s collapse, google ferfal and check out his site.

  • Tee

    Sorry I would have commented but have to go

  • Randy Pickard

    What is magic about reducing social security contributions by 2%? Let’s go Argentinian and really give the ecomomy a stimulus by an even bigger reduction. Heck, the 2% cut in social security, which added another $100 billion IOU to the budget, did not jump start the economy, so let’s go bigger. Why should those born after 1955 really expect there will be money left in the trust fund by the time they are ready to retire?

  • *S*

    Right-On! Herman… Ahh!the Wilder-Beast,wish i had time 2 comment on that 1. When your 2 busy runin, u don’t have time 2 make a stand!!! Happy Trails 2 all. *S*

  • ken

    I live in Florida,,, just got off work,,, time to eat…. gotta run!

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