Will the U.S. Follow Argentina’s Disastrous Inflation?

If you wanted to destroy the currency of a nation, there is no better way to do it than collectively have other nations band together and create their own monetary system and shun the dollar. That’s exactly what BRICS, an acronym for Brazil, Russia, India, China and South Africa are doing. But it doesn’t stop there. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates have been invited to join BRICS as well.

BRICS was originally founded in 2009 as “an informal club in 2009 to provide a platform for its members to challenge a world order dominated by the United States and its Western allies.” South Africa wasn’t part of this group but was added later. It’s creation was initiated by Russia.

Stop and think for a moment what’s going on here. What do most of these countries have in common? The answer is, the U.S. looks at many of them as countries we don’t get along with, primarily China, Russia and Iran. They all are listed as enemies of the United States. 

 

Argentina is trying everything they can to right the ship with their new President Javier Milei so it’s no surprise they are thinking about joining BRICS. And Argentina is a prime example of how things can go south quickly for a countries currency.

Argentina has had 22 agreements with the International Monetary Fund (IMF) since joining in 1956. They are in debt to the IMF for $32450 million. While their economy is still producing GDP, government spending has been out of control. Anyone can see this is unsustainable. And what happened next?

What happened next you can see in the following chart. The Argentine peso crashed. It went from 50 pesos to the dollar in 2019 to 904.42 today. That’s a devaluation of 1,708.84%.

GDP measures the health of a country. Let’s look at a few countries and see where the U.S. ranks. Below is a side by side comparison of Argentina and the U.S.

For 2023 Argentina’s GDP contracted by (1.6%) and for the first quarter of 2024 GDP was -1.9%. The IMF predicts -2.8% for the year for Argentina’s GDP. The US grew by 2.5% in 2023 and increased by 1.3% first quarter of 2024. You can see, Argentina had some good years overall, but a few bad year. That’s why the government stepped in to “help out.” Argentine imports have doubled the last few years. Their major imports come from China and Brazil. A country that imports more than it exports

The two largest BRICS countries have fared better. China GDP grew by 5.3% first quarter of 2024 (5.2% for 2023). Russia grew by 5.4% (3.6% for 2023). China exports 2022 were 3.73 trillion and imports 2.16 trillion. China’s debt to GDP 88.6%. Russian exports over 468 billon 2022 and imports 195 billion. Russia debt to GDP ratio is 20.8%.

While the U.S. GDP at 25.44 trillion leads the world, but the U.S. government is spending was 23% of the total GDP in 2022 at $6.13 trillion, after a record high in 2021. In 2023 government spending was $6.2 trillion and 2024 spending is expected to be $6.5 trillion or 23.1% of GDP. 2024-2028 spending is expected to be the same but increase to 24.1% of GDP by 2034. This of course assumes a perfect world where the Fed keeps a lid on interest rates. That’s just not going to happen.

The U.S. exports were $1.95 trillion in 2022 and imports $3.12 trillion. The U.S. debt to GDP ratio is 123.3%.

The U.S. Economy is Barely Above Water

The Fed meeting on Wednesday resulted in no rate cuts and they now expect just one rate cut in 2024 as they are still fighting inflation. This despite the CPI and PPI data declining. But the Fed has been raising rates for months on end. When they did that in 1999 and 2000, it let do a recession by March of 2001. Remember his quote about “irrational exuberance?” In 2004 Greenspan was before Congress telling them that rates must rise. He said this after telling everyone to get adjustable rate mortgages and that overall the household sector seems to be in good shape. By 2007 Greenspan said risk of a recession was clearly rising. The 2008 financial crisis happened next but Greenspan said, don’t blame me!

Now we have Fed Chairman Powell telling everyone we need to keep rates higher and reducing expectations of future rate cuts. In Powell’s words, “it is unclear why the sentiment of everyday Americans is so sour on the economy.”  Powell said that we have a growing economy and a strong labor market. But is it?

Unemployment rose to 4% its highest level in 9 months. The June 13th Initial Jobless Claims came in higher than expected to a 10 month high. US Consumer Debt is at an all time high at 17.3 trillion.  The range of the top 10 and bottom 10 forecasts for GDP is just over 2%. U.S. bankruptcies rose 16.6% in 2023.

The Fed has a balance sheet that needs to be reduced at some point as well. They are slowly chipping away at the debt each month, however they will eventually be forced to add to it again once the economy falters (as it is now).  You can see their current deficit stands at $6.7 trillion. How do they plan on getting rid of that debt?

Naturally we can’t leave out the over $34.8 trillion national debt.

It truly amazes me how both sides of Congress can spend other peoples money including your children and grand children’s wealth, born or unborn, and when they run out they simply go into debt (deficits) and spend more. What does Congress do every time a debt ceiling vote comes to the floor? Raise the debt ceiling. Then they go out and spend money running for office. It’s all a sham on us the Serfs.

It’s easy for Congress to do this when you have a complicit Federal Reserve that out of the kindness of their heart will print money out of thin air and give it to Congress and charge them (us) an interest rate. Nice gig if you can get it!

But we are out of control and the humpty dumpty economy will come crashing down at some point, just as it did in Argentina. Look at what happened with their massive government spending. The only question to answer, is when?

The Argentine citizen could have bought a ton of gold and silver with their $50 peso in 2019. Will you be saying the same with your $50 Federal Reserve Note in five years? What does this article say will happen?

What about BRICS Future? 

I pointed out in this article that their are countries looking to form an alliance to counter the U.S. dollar hegemony? Will the U.S. go to war to keep dollar dominance? It would not shock me. Especially with Congress’ willingness to open up the coffers to provide funding. It’s not a stretch of the imagination for the rest of the world to eventually transact in something other than the dollar. It won’t happen overnight though.

Many of these BRICS countries have very little debt to GDP ratios and and are net exporters. The United States is the complete opposite and Congress is simply out of control with their spending. Something has to give at some point.

What about Argentina’s Future?

In March Argentine President Milei has said he will take a chainsaw to government with a plan to cut 70,000 government employees. 25,000 were cut and in June he cut 50,000 more state jobs in an effort to reduce the national deficit. He has closed several state agencies. Of course he is being fought on this all the way, but the reality is, it is government who get in the way of a country’s currency strength. No currency has lasted throughout the history of mankind and it is because of out of control governments. Was the Argentine government out of control? Yes. Their currency paid the price and someone has stepped in to try and right the sinking ship. Will it work? Stay tuned.

What about the United States Future? 

I’ve made a pretty good case for expecting some issues ahead for the United States as a whole. The data speaks for itself. Answer the question I asked about Argentina. Is the United States government out of control? Simple math completes the picture for what’s next.

Remember, government is the creature Leviathan mentioned in the Bible that devours everything in sight. To defeat it, you simply take away the food that it keeps devouring. That food is government agencies and jobs, a strain on the balance sheet. Of course it’s simpler to make cuts on spending but that isn’t realistic for the United States Congress.

Many who have called for the dollar crash year after year that I have written about will eventually be right. What the world looks like by that time will be interesting to say the least, but one thing for sure, gold and silver purchasing power will maintain your wealth. Dollars will not.

Gold is your insurance no matter what occurs in the economy and it is always exchangeable for the scrip of the day. Today gold and silver have fallen back in price and present a very good opportunity to cost average into a larger position. Sell some stock that are hitting all time highs today and buy especially silver which has been beaten down over the years and just starting its leg up.

Meanwhile, keep an eye on the FDIC bank failures list for future issues.