By Bill Bonner
Stocks down again yesterday. The Dow slipping 139 points. Gold down slightly.
Gold has fallen so hard so fast we can’t help but feel sorry for the
losers. But who were they? Estimates of the total loss go upward from $1
trillion. Who has that kind of money to lose?
Who lost it? And whom did they owe money to?
We don’t know. It could be nothing more than a regular pullback in an
overextended, otherwise healthy bull market. We’ll just wait and see…
along with everyone else.
So let’s change the subject…
One of the things that vexes just about everyone in Argentina is money. The value of the peso changes rapidly.
There is the official rate. And there is the unofficial rate. Nobody
knows what a peso is worth. Many people – including your humble editor –
have to do some pretty serious calculating. The parts of his brain that
do math must be swelling from overexertion.
“We need gas for the truck,” said Elizabeth yesterday.
“Well, I don’t have any more peso cash. Let’s put it on a credit card.”
“They don’t take credit cards. Cash only.”
“Then let’s pay with dollars.”
“Don’t be silly. That would cost us 50% more. He won’t give us a good rate.”
“Then let’s get some pesos at the ATM.”
“That’s just as bad… we’ll get the official rate.”
Let’s see: We want to pay in pesos, but only if we get the pesos at
the unofficial rate. Otherwise, it’s better to pay in dollars, but only
if the person on the other side will take the dollars at the “blue” or
free-market rate.
Usually, you end up somewhere in between. If you try to bring money
into the country, the government insists you trade it on the official
market. But you can still work out trades at the “blue” rate – either by
bringing physical cash into the country or by working with an
unofficial money changer.
The money changers buy bonds for you in Miami. Then they sell the
bonds in Buenos Aires. The market for the bonds should be about the same
in both cities. The money changer is happy to have his dollars. You are
happy to have pesos that you can spend – or in our case, pay our
farmhands and farm expenses.
Half-Mad Money
It is always a pleasure to visit Argentina. It is a country where
economic disaster stories are daily life… where economists’ daffy
theories are government policy… and where everyday citizens have to
figure out how to deal with a monetary system that is half-mad… and
half merely incompetent.
When we are here, we need to spend pesos… especially out in the
country, where people’s math skills are not as well developed as they
are in Buenos Aires. But any serious purchase – say, if you’re buying an
apartment – requires dollars… either on top of the table or
underneath it. So you have to be prepared.
Most people want dollars. But they can’t take them. Because the
Argentine feds will ask a lot of questions. If a merchant takes dollars
at the unofficial rate, the feds will give him a hard time.
That leaves buyers and sellers of dollars getting together in dark “caves.” Dow Jones reports:
Argentina’s foreign-exchange market is
going underground. As the government restricts access to foreign
currencies, Argentines seeking hard-to-get dollars have been pushed
into cuevas, or caves – clandestine operations where customers pay
dearly to exchange pesos for greenbacks.
Buying dollars for savings is banned,
and authorities make only small amounts of foreign currency available
for travel abroad. Travelers must submit an online request to the
national tax authority just days before leaving, and they usually
receive approval for much less than they requested.
Businesses need government approval to
import equipment and materials at the cheap official exchange rate. The
national tax agency has even posted dollar-sniffing dogs at border
crossings to catch those traveling with undeclared currency.
A visit to Argentina is like taking a Ph.D. in monetary catastrophe
and economic mismanagement. It reminds us how politicians can really
make a mess of an economy when they put their minds to it.
Regards,
Bill
To learn more about Bill visit his Google+ Page or Bill Bonner’s Diary
