New govt of Argentina starts trying to cut 140% inflation by cutting government. And more.

It almost seems like a law of the universe that politicians will always spend more and more money, to bribe voters into re-electing the pols.

Unfortunately the pols don't feel any need to limit their spending to the amount their government takes in in taxes and fees.  So *inevitably,* governments end up either borrowing the difference, or printing it.  Both are disastrous--as we see again and again.

Due to both points above, if you pay attention you know the U.S. is approaching $34 TRILLION in debt, which will require us to pay one TRILLION dollars just in *interest* on that debt in the coming year.

For my innumerate Dem/liberal friends, this is like a family that constantly charges things to a credit card, then finds themselves paying a thousand dollars a month just in the *interest.*  Not many families can take that hit for long.

Democrat: "Dis no problem, deplorable!  Our brilliant preznit and his brilliant handlers know there's no down-side to simply continuing to borrow more money for another few decades!  Cuz sooner or later a future leader will start paying off the debt."

Wow, sparky, that's amazing.  Well, amazingly...something, anyway.  Say, do you have trouble walking and breathing at the same time?

Democrat stupidity notwithstanding, what happens to a modern country that has massive national debt, eh?

We don't have to just guess, because we've seen dozens of examples in the last 50 years.  They get hammered by massive inflation, which destroys the value of all saved money.

Take Argentina, for example.  The former government was eating up almost half the economy.  To pander to socialists the previous government had even created a Ministry of Womens' Affairs.  The heads of "ministries" that did nothing but store records were taking home huge salaries.

So the previous government both printed and borrowed money like crazy--which triggered huge inflation--currently 140 percent per year.

One of the effects of that is that other nations adjust their valuation of the Argentine peso to match international demand.  That is, the national currency is devalued.  And what does that do?

Two immediate effects.  The first is good for exporters, since if they don't raise their prices, cheaper pesos allow trading partners to pay less for, say, a ton of wheat.

But of course that same effect also makes all imported goods cost more pesos.

Argentina's new president, Javier Milei, won by promising to cut inflation by cutting the size and cost of government.  And on his first day in office he ordered 12 of the nation's 21 "ministries" (like our cabinet-level agencies) abolished.  Good start.

But yesterday he announced the peso would be devalued by 54%, from 366 to the dollar, to 800.  This instantly makes Argentina's exports cost 54% less, making them more competitive, but it also makes imports cost 54% more.

The Minister of the Economy said his country needs to solve its “addiction” to deficit spending.  Yep.  The new government says they'll also cut subsidies to the transport and energy sectors, among others.

But at the same time, he says they'll *increase* certain social welfare programs. In a few years we can expect the cost of those added payments will offset any savings, but at least it's worth trying.

Hours before the devaluation was announced, grocers had already increased their prices and banks were offering sharply weaker retail exchange rates. The question now is whether the peso will be devalued further.

The experience of Venezuela may provide some indication of what to expect.  After the Chavez regime sharply increased welfare payments (to buy votes), that nation saw *hyperinflation* of over 10,000 percent annually.  It took a suitcase full of paper currency to buy dinner for two.

The regime was eventually forced to devalued their currency by a factor of 100,000 or so--though cunningly done in several smaller steps to prevent revolution.

Food became so scarce that people were killing and eating zoo animals.  Seriously.

When Chavez died, his hand-picked successor, Nicholas Maduro (think Kamala Harris but with more charm) tried to control things by ORDERING currency controls, meaning ordinary citizens weren't allowed to exchange the worthless Bolivar currency for dollars.  Of course government officials got to buy dollars at a state-subsidized rate that was five times better than the free market.

The previous Argentine regime also tried to slow the peso’s decrease in value by imposing currency controls and import restrictions--which has resulted in at least a dozen exchange rates, hampering business and restricting investment by other countries.
 
And of course currency controls didn't prevent market-based devaluation.

Now, ask your Democrat friends to tell why they believe none of the problems that befell Argentina and Venezuela can happen here.

The canny ones won't try to argue that, but will say "It doesn't matter because since we make everything here, Americans don't need to buy *anything* made overseas."

Really, sparky?  Virtually all consumer electronics sold here are made overseas, including cell phones and laptops.  Roughly half the cars sold in the U.S. are made overseas.  And thanks to "offshoring" of production, we no longer make most antibiotics here.

What will your life be like if the price of those items rose 54% overnight?

Democrat: "Dat not possible!"

Really?

Source.

https://1ft.io/proxy?q=https%3A%2F%2Fwww.zerohedge.com%2Fmarkets%2Fthere-no-more-money-milei-announces-54-devaluation-argentina-peso-shock-therapy-plan-begins