10/13/10 Buenos Aires, Argentina – “This country is in a boom,” said the editor of a financial magazine in Buenos Aires. “Everything is going up. Everything is selling. And inflation is roaring at 25% per annum.”
To hear him tell it, Argentina is everything America wishes to be. Its people shop. Its restaurants are full. Its economy is growing at more than 8% a year.
Why?
“Inflation. Everyone wants to get rid of cash. You hold onto it and it’s worth less and less. So you buy an apartment.”
Amazingly less than 10% of property transactions in Argentina include mortgages. People pay with cash. Still, prices are not as low as you would expect. The lot next to our office is on the market for $250,000.
“It should be about $100,000,” said a friend who keeps an eye on real estate. “But everything is high.”
The cab ride from the airport was 70 pesos when we came 4 years ago. This time it was 128 pesos. Two glasses of wine at a local bar were 40 pesos. They would have been half that a few years ago.
“There’s a boom going on,” continued the financial editor. “But it can’t go on forever. You can’t have 25% inflation and have a healthy economy. People don’t make wise investments. They just try to avoid getting ripped off by inflation. They don’t make long-term investments. They just try to park their money where it won’t disappear. That’s why real estate is so expensive. People will save their money and buy an apartment whether they need it or not. They figure it will still be there in five or ten years. The peso won’t be. At least not today’s peso.”
Nor will the dollar.
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Oh boo hoo, the American dollar apparently buys what 5 cents did in the year 1900. Boo hoo, it has lost 95% of its value.
But wait, what moron would have kept his cash under the matress for the last 110 years?
If invested at just 5%, a nickle from 1900 is worth $10.71 so it still buys 10 times what it did.
And standards of living are up an untold amount since 1900 and life expectancy is hugely longer on average.
If this is what 95% loss of purchasing power does to a county in 110 years, then I say bring it on.
Meanwhile go cry with Bill…
of course your implying the loss of purchasing led to the technology achievements of the last 100 years. Of course your forgetting that the U.S. dollar was tied to gold for most of that period, so relative to other countries the dollar remained strong. How did the people of Germany, Britain, Brazil, India, Russia, Japan, fare over this time period? How much misery has debasement of currency caused? I think the article makes the point of your post that in Argentina cash is dead money.
If losing purchasing power is such a great friend of an investor, why didn’t you exhcnage your federal reserve notes for the currency of Zimbabwe?
What did inflation do for their lifespan and technological advancement? They should be flying around in spaceships right about now…
But if you compress 110 years into say 10 or 15. Then it doesn’t look pretty. I suspect in 2025, you’ll regret keeping any dollar cash or bond holdings from 2010
128euros for the cabride ??!! Yes, inflation is roaring here in Argentina/Buenos Aires, but if you paid 128euros that was something other than inflation. The going rate is between 100 and 125 pesos ! Maybe you were in a limo swilling champagne.:)
The point is, the 95% loss of value in the dollar in the last 110 years did not PREVENT huge technological advance and huge gains in living standards.
Maybe the American dollar is about to depreciate a lot in short order. If so, someone should tell the bond market where people are busily locking away money for 30 years in return for about 4% per year. Assuming those people would like some real after inflation return on their money, they they must not be assuming much inflation.
My guess is he meant 128 Pesos but confused Euros as that is the place he mostly lives .
Actually, a nickle from 1900 is worth exactly 5c. It won’t buy a cup of anything at Starbucks.
Unless something amazing is happening in Canada, it probably doesn’t buy a cup of anything at Tim Hortons, either.
@ InvestorsFriend: You are completly clueless. The great situation fo Amerika today is due to simple factor, nono of which bear any relation to debasing the currency: USA won the world war, and wad the only remaining industrial nation still standing; Dollars were tied to gold for most of that period; Great technological advancements made life easier and longer. Since 1971 (blame Nixon!) the USA has done nothing but go down.
Do your homework before posting, please.
Investor’s Friend is either a simpleton or is purposefully obtuse….
Either way, his ‘advice’ and ruminations are worth less than what you paid for them, if such a thing is possible.
The experience mirrors …
“Make and spend”. Affordable investment normally is not within reach of an ordinary wage earner. Life is at stake.
There isn’t a life guarantee insurance on sale, even if you strive hard enough.
Ignoring personal security above all demanded by an average, many have actually gone bold, brave or daring.
Gee… I wish the article were correct. Unfortuately, stuff is staying unsold on the real estate market for about 5X longer than in 2008 when I arrived here to live full time in Argentina. The AR peso is depreciating faster than the Euro and dollar for the same reason Venezuela’s is… government irresponsibility.
The Ks are turning the country into ArgenZuela.