Argentina and the U.S. - Troubling similarities

There's a possibility of something similar happening in the U.S. - we'd rather at least mention it than not.

Don't shoot the messenger, we didn't invent the facts below.

Year Argentina United States Year
  1. Inflation rate 4%, much of it being due to having tied the value of the peso to the dollar so that people would trust the peso. Inflation had reached a peak in 1989 at 5100%, dropped to about 1200% in 1990 and then to 84% in 1991, so trust in the peso was sorely needed.
  1. Relatively low official inflation rate of 2.7% in 1999 & healthy economy.
  1. Recession, 3% drop in the economy.
  1. Mild recession in 2001, 2% drop in economy.
  2. Stock market peak in 2000.
  3. Federal Reserve starts to lower interest rates to stimulate the economy, heading for a 30 year low.
  4. Dollar index value peaks in 2001 at about $1.20.
  1. Foreign money coming in to invest in an improving economy.
  2. The government starts significantly increasing their use of debt to finance government deficits instead of printing money.
  3. Ratio of debt to GDP - 29% in 1996, climbing to 38% in 1997.
  4. The multi-national bank J.P. Morgan was one of the biggest promoters of foreign investments.
  5. Economy(GDP) grows at about 8% in 1997.
  1. Foreign money coming in to invest in an improving economy.
  2. The government starts significantly increasing the use of debt to finance government and trade deficits instead of printing money.
  3. Ratio of debt to GDP - 265% in 2002, climbing to 285% in 2003.
  4. The Federal Reserve encouraged the actions and foreign investments.
  5. Economy(GDP) grows at about 5% in 2003.
  1. Ratio of debt to GDP grows to 41% in 1998, then 47% in 1999.
  2. Argentinian Treasuries were paying 12% more than U.S. treasuries
  3. International investors starting to lose confidence.
  4. Brazil declares their currency to be worth less in 1999, which hurts Argentinian exports greatly. Recession starts in 1999, economy (GDP) shrinks by 3%.
  5. Warnings from the World Bank, B.I.S. and I.M.F. regarding dangerous and unwise monetary policies and practices. (IMF loans about $16 billion to them))
  6. Government deficit running at about 2.5% of GDP in 1999.
  7. Official inflation rate in 1998: 1%, in 1999: -2.0% (minus 2%)
  8. 30-59 day CD interest rate - 7-8%
  1. Ratio of debt to GDP grows to 305% in 2004.
  2. Federal Reserve starts raising interest rates, raises them 11 times as of October 2005.
  3. Dollar index falls to 80¢ in Dec. 2004, equal to the all time low. Many international investors losing confidence in dollar stability and value, even as it rebounds to 88¢ in June 2005.
  4. Leading economic indicators pointing towards recession and slowdown. Our adjusted Real GDP data as well as an FDI adjusted GDP graph show a level economy at best since 2003-4.
  5. Warnings from the World Bank, B.I.S. and I.M.F. regarding dangerous and unwise monetary policies and practices.
  6. Trade deficit, budget deficit, and off budget spending all at record dollar levels. Government deficit running at about 3.5% of GDP in 2004.
  7. Official inflation rate in 2004: 2.7%. Through October 2005, it's 4.7%.
  1. Ratio of debt to GDP grows to 51%. (IMF loans another $20+ billion)
  2. Recession continues and economy shrinks another 3% (GDP growth of 0.8%).
  3. Government starts forcing the banks to buy government bonds to help support the currency and economy.
  4. Inflation rate: -0.9% (minus .9%)
  5. 30-59 day CD interest rate - 7-8%
  1. October 2005 - ratio of debt to GDP growing faster due to Katrina, unfunded Medicaid drug program, massively higher oil & gas prices, etc.
  2. The "hidden" recession continues (see links above in the 2004-5 section) and is becoming more visible to the average US citizen. If the CPI calculations behind the GDP were more correct, it would be visible - see our CPI page for more data & facts. We estimate that real GDP dropped in 2004 by about 3% and about 1.5% more in 2005, and will likely drop at least 2-3% more in 2006.
  3. In at least one Treasury bond auction in January 2006, primary dealer banks had to buy bonds.
  4. Estimated average CPI inflation rate for 2006 per our forecast drops in half and then moves back up fast.
  5. IMF warns again about global imbalances due to the dollar, etc.
  6. August 2006 - the IMF warns that the US dollar is overvalued anywhere from 15-35% on a Trade Weighted basis.
  1. Recession continues and economy shrinks another 4%.
  2. Debt-to-GDP ratio about 55%.
  3. Argentinian Treasuries now paying 45% more than US Treasuries.
  4. IMF comes in with another rescue worth $14 billion to support the shaky economy.
  5. A few bank runs occur, and their frequency increases.
  6. Government announces a zero deficits policy, cuts government pensions & salaries by 13%, cuts total spending by about 18%.
  7. IMF comes in with another rescue worth $8 billion. Soon after, the government suspends foreign debt repayments.
  8. Inflation rate: varies, starts at 4% and ends the year at over 40%
  9. 30-59 day CD interest rate - increased from 7% early in year to 32% in December.
  1. Official recession starts in Dec. 2007.
  2. Treasury rates are headed up as of mid 2009.
  3. Many other central banks are continuing their support by lending to the US, although as of late 2009 there's much question on how long it will continue.
  4. Bank failures are increasing and many big banks are technically close to or are insolvent as of mid 2008... and are in extreme distress per public knowledge as of late 2008.
  5. California is starting some huge cuts as of mid 2009. Early 2010, the President announces a freeze on many domestic programs.
  6. As of late 2009, Fed custodial stats still show reasonably healthy overall inflows from other countries to finance US budget & trade deficits. Mid 2010, the IMF presses US to cut debt.
  7. Public inflation rate at about 4% as of early 2010, actual inflation rate at about 11%.
  8. One year CD rates have started an up move as of late 2009.
Dec. 2001
  1. Crisis peaks with the implementation of the 'corralito'.
  2. Money prevented from moving out of the country.
  3. Minimal money allowed to be withdrawn from banks.
  4. ATMs are emptied fast, and not refilled due to government attempts to control the economy.
  5. IMF says they won't lend any more money.
  6. Riots and protests in the streets.
If a currency crisis does occur in the U.S., it will likely not be anywhere near as severe as what occured in Argentina or especially Russia. We do expect inflation of well over 25% average annual rate though.

As of mid 2011, our beliefs have changed and we now believe that the chances of U.S. hyperinflation in the future is at least 1 in 5.
  1. Formal reporting limits on monetary flows exiting the US have been in place for many years.
2002 & beyond
  1. During the period after 2002:
    1. 40-53% of the population live below the poverty line, compared to well under 25% in prior years.
    2. The peso worth went as low as 17 cents as compared to about $1 in 2001. The 2005 peso is worth about 34 cents.
    3. The majority of the middle class has been financially wiped out.
  2. World commodity prices having bottomed in 2001 has helped them pull out some since the country is rich in minerals and other commodities, but they're still trying to work out the huge debt and social problems.
  3. Unemployment rate went from about 6% in 1992 to as high as 25% in 2002-3.
  4. Poverty rate peaks at over 50% of the population.
  5. Inflation rate: 2002 varies, starts at over 40% and ends the year at about 5%, averages 26%
  6. Inflation rate: 2003, averages 13.4%
  7. Inflation rate: 2004, averages 6.1%
  8. 2005 - many government bonds were defaulted on, causing an almost 100% loss to investors in them.
A BBC story from Argentina, April 2002
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A BBC article about Argentina from April 2002

Wikipedia article - 'Argentine economic crisis (1999-2002)'

2005 gold price in Argentina still approximately 1200 pesos
2006 gold price in Argentina is over 1200 pesos
2007 gold price in Argentina is well over 1300 pesos, and we expect a similar scenario in the US.

For those who understand monetary aggregates, here's Argentina's data from 1993-2005 from their central bank. The key point, in our opinion, is that very recent large monetary or credit growth was not related to the huge loss in value of the peso. What happened in Argentina in 2001-2 was not the same as the hyperinflation in Weimar Germany.

And here's another picture of the the 2001-2004 period, showing rates of change of the Argentinian Peso, gold and the main stock index in Argentina:

Note: Some of the statements above have been made in a general and somewhat imprecise way in order to make a cleaner and simpler comparison. One example is the stated inflation rates in both countries. We used the government published rates as opposed to the actual rates, which were significantly higher in our opinion.

More data about Argentina is also available in the book called "And the Money Kept Rolling In (and Out)" ( link) as well as at Wikipedia 1 and Wikipedia 2. Also see Confiscatory Deflation: The Case of Argentina.

The darker side, from an Argentinian analyst
Salbuchi - Global Financial Collapse - Part 1, Part 2