Friday, August 28, 2009
The Argentinian Lesson
The USA owes 60% of its GNP and cannot stop spending. This is a classical Argentinian situation and the outcome will be also Argentinian. First of all, there is nothing to fear, the country will keep existing and there will be no mass hunger (Illustration: Asado a la Tabla) nor prolonged poverty. Somewhere in the next five years the bubble will burst and the USA will default in its sovereign debt. Possibly it will renegotiate it, which is the same thing. Conclusion: Sell American bonds. Second, dollars will be printed. This creates inflation - think Argentina. The dollar will be exchanged to the "new dollar" or something like that, a a rate of 100 old dollars for 1 new dollar. The new currency will be made of washable plastic, like the Australian dollar.
Taxes will rise to levels that would make a Swede revolt. Bank accounts will be frozen, bank safes opened and their contents - expropriated. The government will cut back its services and public employees's salaries will become insufficient for middle class standard of living.
Investors who dare to assume long term non-indexed dollar loans and buy productive enterprises such as rental real estate will pay back their debt at a 80 - 90% discount.