American Hegemon
War, inflation and other familiar signs on the road to ruin...
Bill Bonner, reckoning today from Buenos Aires, Argentina...
For the past 30 years, the American hegemonic project has proved both unsustainably expensive and strategically illusory.
~ The 2018 National Defense Strategy: Continuity and Competition
We arrived in Buenos Aires this morning. Population: 3 million. Temperature: about 75 degrees. Inflation rate: 99%/yr.
How can you live well when prices double every 12 months? We’re going to find out.
Meanwhile, we’re working our way through recent headlines, trying to see where we might be headed. We believe they point to a ‘cluster’ of catastrophes… financial, economic, political and social.
The money disaster is obvious. Americans owe too much money, in debts contracted at very low interest rates. As rates rise – which they must, both in response to and opposition to inflation – trillions of dollars’ worth of debt will have to be written off or inflated away.
The other disasters are less obvious. It’s one of those that we look at today.
Top Dogs
Empires don’t act like normal countries. They are the alpha male of nations. Or, as Madeleine Albright put it, they are the “indispensable nation.” Like the lead dog on a sled team, they dominate other dogs – by force – and fight off rivals. But as they age, they become vulnerable. It is just a matter of time before the pack turns on them.
Empires age too. They ‘over-stretch.’ They get involved in too many battles...and spend too much money. Then, war and inflation, like age and infirmity, do their work…
As reported yesterday, the best recent advice on the war in the Ukraine came from an unlikely source: Mr. Donald Trump. It was he who proposed (before the Deep State insiders got him back on the leash) that the US leave NATO…and it was he who just followed up by suggesting that we should say ‘no’ to requests for more military aid to the Ukraine.
Alas, Mr. Trump is as unreliable to his friends as to his enemies. Now, he claims he saved NATO:
“I hope everyone is able to remember that it was me, as President of the United States, that got delinquent NATO members to start paying their dues, which amounted to hundreds of billions of dollars,” Trump wrote in a statement released Monday. “There would be no NATO if I didn’t act strongly and swiftly.”
So, let us leave Mr. Trump and turn to more constant sources. George Washington in his 1796 farewell address warned against ‘foreign entanglements:”
"Against the insidious wiles of foreign influence... the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government."
Words of Warning
But an empire needs to act like an empire. After conquering its own Southern States, it took on Spain…and then Germany….and then Japan…and then the Soviet Union…and then…and then… In his farewell address, in 1961, Dwight Eisenhower warned against where this would lead:
…we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
Taking their wealth and liberties for granted, Americans fell asleep…and the Deep State (along with the entire class of elite…which Antonio Gramsci called the ‘hegemon’) grew. Now it is unstoppable.
Meanwhile, since the time of Peter the Great, in the 17th century, Russia has periodically tried to join the family of European nations. By most accounts, this is what Vladimir Putin desired as well.
Know Thy Enemy’s Enemy
But the hegemon had other ideas. The US/EU/NATO party was already underway in Europe, and the Russians weren’t invited. Instead of leaving NATO, the US strengthened it. And when war broke out, NATO formed up on the side of The Ukraine (though the Ukraine was not a treaty member). This left Russia to seek allies elsewhere. It is finding them, in Africa…and in Latin America. Most ominously, it is creating a potent new coalition …with the natural resources of Russia and Iran, the human resources of India, and the financial and technical resources of China. They are already sharing energy and raw materials, a rival currency and a new financial clearing system.
What will the future bring? We’ve read no more of tomorrow’s headlines than you have. But it looks like America’s wars and sanctions may be breeding the next lead dog. Empires have to die somehow. Inflation and war are time-tested ways to kill them.
Regards,
Bill Bonner
Joel’s Note: If you want to know how the world ends, with a whimper or a bang, you can do worse than examine the situation on the ground here, down at the “fin del mundo.”
As Bill mentioned above, inflation is running at a red-hot 99% in Argentina. Here’s the chart, from Bloomberg:
Citizens of orderly, developed nations – with “puny” inflation rates of, say, 6... 8... or even 10%... – want to know: what does 99% inflation mean, practically? How does one run a business... save for retirement... protect one’s wealth from the ravages of money printing?
Answer: With great difficulty... stealth... cunning... and a well-honed sense of humor.
First, every business owner keeps (at least) two sets of books: one for the government’s eyes, one for the actual accounts. A friend went through the corporate tax laws here some years ago; if a company was to pay all it owed, officially, its tax bill would amount to something like 120% of earnings. Not even the Argentine government itself expects its citizens to pay that much.
Second, folks get out of the peso, any way they can. The government is strict about capital controls, allowing Argentines only a small allowance (about US$200) of foreign currency purchases per month. So people exchange on the widely-used black market, where, because of the premium on highly sought-after dollars, the unofficial rate is about double what the official rate is. (The official rate this morning was 191 pesos to US$1; unofficially, it’s 374:1) From a local site, DolarHoy.com…
Money exchanging “cuevas” (literally “caves”) are dotted all over the city. They’re “illegal,” but nobody pays attention to the laws anyway. It’s not uncommon to see police officers moonlighting, in uniform, as security guards out front of the exchange houses. (The cuevas pay them in USD, while the government only pays in pesos, so it’s really a no-brainer.)
Third, when and where they can, locals buy real assets. For some, that means farm land. For others, it’s gold or apartments in the city or even building materials. (A pallet of bricks will still be a pallet of bricks a year from now... while a thousand pesos will only be worth five-hundred, at most.) In recent years, younger people have sought refuge in cryptos, with widely varying degrees of success.
And finally, the porteños have a sense of humor and perspective as to what’s really important in life...
The subject of inflation came up over dinner last night, at a packed restaurant (Lo de Jesus is a neighborhood favorite, frequented by locals and gringos alike). We were entertaining an old friend, visiting from California.
“You wouldn’t think the economy was in the tank,” he remarked. “This place is packed!”
“That’s because everyone is getting rid of their pesos as quickly as possible.”
“What, by eating them?”
“And drinking them, too.” We pointed to the table next to us... and the half a dozen dead malbec soldiers in front of a jovial group of about the same size. “Better six bottles today than three in a year’s time.”
We just came back from a trip to Argentina. My eyes and ears were open, listening and looking for signs of what a 99% inflation rate might mean for the country. What would it look like? Derelict buildings? Burned out vehicles blocking streets? No public transportation? Hordes of people begging for food?
Hardly.
The trip from the airport by taxi to our Airbnb in the upscale district of Palermo in Buenos Aires went past a lot of buildings that were in need of maintenance. For sure. But nothing resembling the backdrop of the Walking Dead series. People were having picnics in parks alongside the freeway. Interesting, but nothing world ending. Fare? Was about 5,000 Pesos. Or $25 USD. For a 30 min cab ride. Traffic as normal as any big city. A little more chaotic, but nothing crazy.
The AirBNB was in wonderfully treed neighborhood, across from a coffee shop that was doing brisk business, both inside and outside on its street patio. The apartment we rented was found behind a massive door that led to a courtyard that was kept spotless by a middle aged lady, who was the caretaker. The amenities were humble, but had everything we normally find in AirBNBs. Including a/c, running hot and cold water and a comfortable bed.
If you were to walk down Florida St., in the heart of downtown Buenos Aires shopping district, you could mistake the area for any upscale shopping district anywhere in the world. While the poverty was evident here and there with the odd homeless person sleeping in a doorway, upscale shops were open everywhere. Prices of course, were geared towards tourists. Definitely not locals, as a typical Argentinian (according to Google) makes $450 USD a year (or $157,000 Pesos). And a purse that my wife purchased was $75 USD. A deal for her. One sixth of an annual salary for a local.
The prevalent word on the street, "Cambio," was everywhere. Every 20 or 30ft. "Cambio, cambio, cambio" or Currency exchange in English. Even if you had no skills, you could say that word. Then with tourist in tow, take the person to the Exchange booth where you would get a cut of the proceeds. If you exchanged a crisp $100USD, you got $370 pesos for $1USD. If you used $50 or $20, you got 350 or 320 Pesos per USD. No ripped or marked bills. The entire exchange process felt like we were doing something illegal as the person doing the exchange did so behind a one way mirror. While the government does not encourage using USD for goods and services, it does look the other way.
Buses were running. As was the subway. We took a hop on/hop off tour for $50 USD for 2 people and rode the bus around the town. Absolutely stunning, especially the parks, where we saw people doing roller blading???, outdoor zoomba classes, running, biking and just enjoying life.
The restaurants were amazing. Food in touristy areas was still affordable. In tourist traps, you were paying US prices. If you ate off the main strips, you ate like a king and paid like a pauper.
That was Buenos Aires. If you travelled into Patagonia, which we did, the people only became friendlier (if that was possible), and more humble. And the vistas to explore, were unlike anywhere else in the world.
PGV, sell his ranch? Why in the world would he do that? He is tucked away into some of the most desolate but beautiful world, that is far away from everything were s*it to hit the proverbial fan. Plus he is actually creating and adding something of value to the world. In a place that time has forgotten. The originarios will eventually adapt to Bill, as Bill brings more value to the area and their lives. Otherwise, they would have scorched the ranch in his absence. They know it, and so does he.
Do they want something? Yes. Does Bill know what that is? Doesn't appear so. However, one day, the communication channels will open. Until then, its a waiting game for Bill and his family.
He is heaven sent to those that he employs, and to the people that get to enjoy the fruits of his and his employees' labor. May he flourish and be well.
DolarHoy.com is an interesting website (when translated into English by Google). I learned that in Argentina there is a Blue Dollar, a Dollar Currency, an Official Dollar, a Solidarity Dollar, a MEP Dollar, a CCL Dollar, a Tourist Dollar, and, not to be left out, a Crypto Dollar! Each seems to have its own exchange rate with the Peso. Bill and Joel, how do you manage this? Maybe that's why those folks were drinking all that Malbec at the restaurant!