How Money Printing Destroyed Argentina and Can Destroy Others
The comments below are an edited and abridged synopsis of an article by Daniel Lacalle
The most dangerous words in monetary policy and economics are, “this time is different.” Argentinian politicians’ mistake was to believe that inflation is multicausal and that everything is solved with interventionism.
Argentina’s CPI experienced a year-on-year rise of 58% in April 2022, which means 2.9 percentage points above the variation registered last March, a catastrophe.
Inflation in Argentina has one cause: An extractive and confiscatory monetary policy. Printing pesos without control and without demand. Argentina balloons its monetary base to finance excessive, inflated and destructive public spending.
So far this year, the monetary base has increased by 43.83%, which is utter madness. Price inflation is 58.2%.
In the last three years, the monetary base has increased by 179.73% and in ten years by more than 1,543.8%. That is an economic aberration.
In the last ten years, the Argentine peso has lost 99% of its value against the US dollar. This is an expropriation of the country’s wealth by printing useless pesos.
Lacalle discusses the Argentinian situation as it relates to the US, and concludes, “All the aforementioned decisions of the Argentine government are now championed by politicians all over the US and Europe: ‘It will not happen to us,’ and ‘this time is different.’ It is not different.”
Empires fall because they start destroying the purchasing power of their currency and because their position in the world collapses as protectionism and interventionism erode confidence in the government and its institutions. Once the destruction starts, it is only a matter of time before citizens start saving in gold or other reserves of value. There is a lesson for those that defend constantly pushing the limits of monetary policy and isolationist measures: Once you’ve pushed too far, there is no turning back.
J.P. Morgan used to say that gold is money and everything else is credit. Credit is confidence. Once confidence is lost, the currency dissolves. This is a lesson for everyone.