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A Lesson For America To Learn In Economics by Mike Deubig

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A Lesson For America To Learn In Economics by
Article Posted: 01/01/2013
Article Views: 312
Articles Written: 7
Word Count: 808
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A Lesson For America To Learn In Economics

Government,Business,Current Affairs
In the 1970's Argentina began borrowing money from the international bank. Most Argentinians thought nothing about it. The government made promises of prosperity and new roads, but they were similar promises from the past, and all the citizens saw was more taxes. However, this time it was different. The amount of money which was borrowed by the Argentina government produced new projects like dams that employed thousands! New roads across the countryside, public buildings that employed even more Argentinians. And the greatest thing of all, the taxes didn't go up! Instead, the taxes went down which was unheard of in a South American country!

There seemed to be a new found prosperity happening in Argentina. People were able to save money for their future, and find jobs within the government that was twice as much as the private sector. This was so appealing to the population that the government became the employer of preference for anyone seeking to get ahead. The very politicians who were once looked upon as parasites became national heroes of the average working class. No one seemed to care or notice that the country was spending way more than it had because prosperity abounded everywhere. They reasoned that the rich nations wouldn't allow them to borrow all that money if they couldn't pay it back. As the yearly debt began to rise, some academic people began to say Argentina was spending too much money. But their warnings were ignored as alarmists.

Then the debt reached 10 billion, where the alarmists predicted the economy would meltdown but that didn't happen! Sure, interest payments on the debt was large, but the government would borrow more money to cover the payments. Prosperity continued to abound everywhere while the debt continued to go up to 20, then 30, then 40 billion dollars. More and more politicians became concerned. However, these politicians who even suggested of reducing the debt and spending was voted out and more progresses were voted in. In Argentina there was serious talk about them becoming an economic power. The population was very hooked on credit, many people were borrowing heavily against their homes (similar to the housing boom in the United States for 12 years) that would increase the values of their homes. As foreign credit was drying up, taxes began to rise. Argentinians complained; but prosperity continued. So they paid higher taxes.

The international loans, which had originally been meant to help the country develop natural resources, instead went to government buildings, public assistance and more bureaucrats to administer the programs. Roads were built to create jobs, not to develop new industry. Many became direct beneficiaries of the new prosperity. In other words, they accepted government welfare not to work. It was very common for business owners to sell at inflated prices and then turnaround and work for the government and then retiring with a very comfortable pension that wasn't being matched in the private sector. The majority believed the prosperity would never end.

But one day, the world bank pulled the plug. The money stopped flowing to the country. The debt exceeded the country's total worth. More taxes couldn't make up the difference so they did what every country who has ever done in this position, the government increased the money supply to pay the bills. At first, it allowed inflated prosperity to continue without the borrowing from other countries. After awhile, the Argentine astral began to devalue and was worth half as much as it was before on the world market causing goods and services to go up dramatically. Angry citizens demanded the government do something, so price controls were instituted on food and fuel. No thinking merchant was going to sell his merchandise at such a low discounted price knowing he wouldn't make a profit by being force to pay a premium to restock what he needed.

In six months, Argentina's currency devalued by more than 600 percent! Life for the average citizen was a nightmare, it was struggle to buy food and pay the utility bills. Four months later, the price of food went up by 6,000 percent! The entire life savings of most in Argentina was spent in less than six months. They tried to sell anything of worth just to survive! This was something that the alarmists had predicted which didn't come to pass in the beginning, but did later on. In 1989, the people of Argentina elected a dictator to re-establish control over the economy with even more stern price controls backed by stiff prison sentences. And things like certain retiree benefits was eliminated but very little opposition because of the fear of more cuts being made under the new dictatorship.

Can America learn from other countries who went through hyper-inflation by spending way beyond their means for so long that the credit had dried up...Yes!

Related Articles - money, economy, government, banking, debt, inflation, america, Argentina,

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