Friday, April 5, 2024

MAGA down south

Before you read this post, please first read this post from 18 months ago. We are back in Argentina, and there have been some notable changes since our last visit.

By far the most significant change is Argentina's new President, Javier Milei. He's a libertarian and believes strongly in limited government and free markets. He is attempting a hard, far-right turn in Argentina's left-wing-damaged economy, which, if successful, could have ripple effects throughout the globe. He's only been in office since December, so the results are only visible if you know where to look, and I'll expand on that later. His objectives are straight out of the libertarian, free-market playbook: shrink Argentina's bloated government, kill inflation, gut regulations, eliminate subsidies, and root out corruption.

Since our last visit, the price level in Argentina has gone up over 4-fold; in percentage terms that's 4,430%. But the exchange rate has only increased almost 3-fold, or 260% (from 300 pesos per dollar then to about 1100 pesos per dollar now). As a result, Argentina is more expensive for a US tourist today than it was then. But it's still pretty cheap. The fish BBQ for four (actually four of us couldn't finish it) we had back then was $33, now it's $47. Excellent wine back then was $27, now it's $39 at our favorite Buenos Aires restaurant.

The most curious thing is that back then the largest denomination peso bill was 1000 pesos. A 2,000 peso note was subsequently released, but they are few and far between. In fact, I have only seen one after a week of looking—and I have yet to see any smaller bills. The 1000 peso bill today is worth about one US dollar, so let's call it Argentina's one dollar bill, and it's effectively the only bill you will see in circulation. Virtually all cash transactions are conducted with this bill, which means that everyone is walking around with a huge wad of $1000 peso notes in their pocket or purse. This also means that credit cards are essential for anyone expecting to make a payment of more than, say, $40-50 dollars.

Ubers are all over, and they are unbelievably cheap. My most expensive ride took us across town for about 20 minutes at 1:30 am. Uber charged me $5. I couldn't resist giving the driver the maximum tip Uber was willing to allow: $2.50. I would have loved to see his face when he saw that pop up on his screen! Most other rides of a couple of miles cost less than $2. Today's lunch at our small local hotel consisted of a glass of wine, a huge milanesa with an equally huge portion of real mashed potatoes, and an empanada. Total cost $12.

Any American who has heard of Milei will want to know the answer to this question: are the people willing to undergo a significant degree of hardship while he implements his draconian policies (e.g., slashing government spending, eliminating subsidies, firing tens of thousands of government workers, eliminating rent control)? Right now there is no question they will endure, because they know he is doing the right thing. Besides, they've suffered through so many hardships that one more is not going to be a deal-breaker.

I got together with a group of 8 local friends last night to talk about this and other things. The evening kicked off around 10 pm with some wine and hors d'oeuvres, followed by a delicious asado (bbq). Followed by more wine and some heated discussions. They were all quite positive about the future. I got back to the hotel at 3:20 am. I'm still recovering, but they all had to work today. These are the things I love about Argentina: great food, great wine, and great friends. Unfortunately the economy is anything but great.

Milei really should adopt Trump's MAGA slogan: "Make Argentina Great Again."


M Miller said...

Scott - Thank you for this interesting insight. Questions if you have time: 1] What is the demographic profile in Argentina? Is it aging rapidly like many developed countries [China, S. Korea, Western Europe] or is it more like Mexico and Brazil? 2] Also, any interest investment ideas?

wkevinw said...

For anybody thinking that somehow the rich countries always get richer, look closely at Argentina. About 100 years ago (or a bit more), Argentina was probably the richest country in the western hemisphere- yes, richer than the US. Exactly how they stumbled isn't clear to me, but part of it has to be the lack of the clearer rights and economic expectations that we have in the US.

I worked with a couple of guys from Argentina. They were great guys. Very competent in their work. They lived a little bit out from the largest cities, didn't have to deal with some of the civil unrest, crime, etc., so they had/have a pretty good life.

Thanks for the post.

Christian S. Herzeca, Esq. said...

what is your favorite BA restaurant?

randy said...

I recently visited Buenos Aires at the tail end of a Patagonia trip. I found the same thing with Uber - it was ridiculously cheap and the gratuity was limited by the app. I struggled a bit trying to figure out how to handle gratuities in general. A few places asked if we wanted to add propina, but it seemed fixed at some modest amount. Many other places didn't seem to offer any option for gratuity when using a credit card. But getting currency, say from an ATM, was confusing, and difficult to make change small enough for tips, and I didn't want to end up with Argentine pesos I had to get rid of. So tipping was hit or miss, but no one seems to mind. Chile and Argentina were wonderful to visit - much more enjoyable than the recent slog with the crowds through Italy.

Roy said...
This comment has been removed by the author.
Scott Grannis said...

Argentina does not have a tipping culture. A generous tip at a restaurant would be 5%. Given the almost total lack of bills smaller than 1,000 pesos, I have handed out a lot of those bills, one at a time.

Our favorite restaurant is Fervor, just a few blocks from the Alvear Palace. Don't miss their fish BBQ.

Argentina doesn't have an aging population problem. The country suffers from a lack of people. Many well-educated and hard-working people have left the country over the years, searching for better opportunities abroad.

Benjamin Cole said...

I hope Milei gets rid of property zoning too.

I love the guy. He went to Israel when the lefties were chanting odes to Hamas.

Aloysius said...

Aside from the embarrassingly bad math, I enjoyed this blog. A 4 fold increase is up 300%. A doubling or 2 fold increase is up 100%. This is a common mistake. I don't know how or why you added an order of magnitude in your 4 fold increase...but there it is.

Adam said...

One of the topics on the table now, is a potential goods deflation coming from China. Can you tell us, what to observe to spot this trend, if that happens in the US.

Salmo Trutta said...

Contrary to the FED’s technical staff, retail MMMFs are nonbanks.

In my 1958 Money and Banking text. “Purchases and sales between the Reserve banks and non-bank investors directly affect both bank reserves (outside money) and the money stock (inside money).”

Mises has it right:

“The definition of M2 includes money market securities, mutual funds, and other time deposits. However, an investment in a mutual fund is in fact an investment in various money market instruments. The quantity of money is not altered as a result of this investment; the ownership of money has only changed temporarily. Hence, including mutual funds as part of M2 results in the double counting of money.”

see: “Correlations and the Definition of the Money Supply”
October 19, 2023

There’s not much new under the sun. It’s the credit school vs. the money school.

Since the monetary authorities make their determinations on the basis of the size and not the “mix” or the bank credit proxy, there is no a priori reason to assume that an expansion of time deposits will alter the FOMC’s consensus as to the proper volume and rate of change in bank credit.

The FOMC’s proviso “bank credit proxy” used to be included in the FOMC’s directive during the period Sept 66 – Sept 69. That’s the “credit school” (that the money stock is a by-product of credit policy, as opposed to the “money school” (the tangible stock of our primary or means-of-payment money supply, is the only valid indicator of monetary conditions).

Increases in DFI loans and investments [earning assets/bank credit], are approximately the same as increases in transaction accounts, TRs, and time deposits, TDs, [savings-investment deposits/bank liabilities/bank credit proxy] excluding IBDDs.

That the net absolute increase in these two figures is so nearly identical is no happenstance, for TRs largely come into being through the credit creating process, and TDs owe their origin almost exclusively to TRs – either directly through transfer from TRs or indirectly via the currency route or through the DFI’s undivided profits accounts.

In the credit school, large CDs constitute an increase in credit. But the pundits omit large CDs from measures in the money stock. Large CDs are thus, obviously, an increase in the money stock. Large CDs represent shifts from other deposit classifications. In other words, monetary policy is loose. Combine that with the FED counting MMMFs as banks and you get the rise in gold and other commodities, in other words, a rise in inflation.

Salmo Trutta said...

If, for example, large CDs were expanding as fast as the banks were making loans and creating new demand deposits, the money supply would remain virtually stationary. The money supply criterion would therefore create the illusion that a tight money policy was in effect. But large CDs are excluded from the money supply.

wkevinw said...

...looking for the reason for the economic strength over the past few years, and several good explanations have been offered. The real disposable personal income was boosted about 5% above trend for two solid years (and maybe a bit more). That is real income. So people accumulated much more cash than they planned for for at least two years. (the nominal disposable income spike in 2021 was gigantic!)

So, that has gone into lots of things, including immediate spending, some "saving" and "investment". So, the residue of that income could last several years.

Also, the benefit for mortgage holders with ~3% rates is hard to overstate. A lot of folks pay attention only to income/dividends, and may have some capital losses in bond portfolios, but dividends are high if they rolled them. Money market funds are paying nice rates. Many use short term paper to supplement income. They have done well now for a couple of years.

It will eventually end, but who knows when.

Salmo Trutta said...


"Einstein’s maxim that models should be “as simple as possible, but no simpler.”

Money tells all. Shadowstats has it right. But Divisia Aggregates, TMS, Lacy Hunt, etc. have it wrong.

VideoSpaghetti said...

Hi Scott!

Greatly enjoy your reports on Argentina.
I have not found good websites for news and commentary from there in English…
Any you would recommend?

And I just ordered some of that Mariflor!

Regards, Conrad

Scott Grannis said...

The best source of news on Argentina is iProfessional

It's in Spanish, however, but there are ways to have it translated for you online. It's so good, in fact, that it's worth the trouble to find a translation method.

VideoSpaghetti said...

Estoy muy agradecida, Scott!

Full-page google translate doesn‘t work with IProfesional’s format.
But just selecting textblocks gives the translate option.

When following Venezuelan politics I found a number of interesting opposition bloggers,
many no longer active or silenced; are there some you like in Argentina?

It’s unfortunate that BAtimes. seems to be Argentina’s sole english language news site.