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Monday, February 4, 2013

The End of Argentina's Economy

Argentina’s president, Christina Fernadez, and her Minister of Finance, Hernan Lorenzino, have just announced a nationwide freeze on prices to last for two months. They do this in a doomed-to-fail attempt at curtailing the runaway inflation that these to idiots have unleashed on their own nation because they can’t stop printing and spending money the nation does not take in and can no longer borrow.
Sound familiar?

Argentina defaulted on their national debt in 2001 and have been printing money to pay their debts ever since. In her effort to continue to buy the vote, Christina Fernandez has just let the presses go and has done everything she can to make the Argentinian people look the other way. But her attempts at distraction first by pointing a finger at England and the Faukland Islands and then the International Monetary Fund, are transparent and futile. Argentina doesn’t have the cash to wage a war over the Fauklands and doesn’t have anybody else to lend it money so their method of last resort is to freeze prices for two months.
This will do nothing.

Freezing prices does not work, has not worked and will not work. Two months will go by and prices will jump to where they were going to go all along but will happen all at once.  This is what the market does and although prices may be frozen, costs do not freeze just because a government says they do. In fact, regardless of what a government may impose and what people may believe, markets know no boundaries and are only under the consumer’s control. Freezing prices just shorts the seller and will only lead to less. If a product costs more to produce than what the manufacturer receives, there will be less of that product. The army can show up at the factory and attempt to make it run or even try to force the manufacturer to produce but history has shown that slaves are poor producers in comparison to adequately compensated workers. You can’t defy gravity for long and Argentina is just another in a long line of Socialist states that will find this out.
In 1971, U.S. President Richard Nixon imposed wage and price freezes along with other measures that moved the United States off the gold standard. What was initially a 90 day freeze turned into a 1000 day freeze and was a total failure brought on by a president who actually knew better but did it anyway and behold, it did nothing to keep down prices or inflation. Only cutting government spending and balancing the national budget can do this.

This is always the last resort of government.
Like the U.S. in the 70s and the U.S. in the future, Argentina has seen its share of shortages, deficits and hardship and they are not through yet. This will only cease if they can find a way to elect a real president with an economic education rather that the say anything, spend the treasury to stay in power charismatic despots they always seem to get.

Hmmm, that sounds familiar too.

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