"Capitalism has Failed"

Plus, dinner in Palermo, music by Piazzolla, libations from Piattelli and plenty more...

(Scenes from Palermo Soho. Source: Joel)

Bill Bonner, reckoning today from Salta, Argentina...

Observations from South of the Rio de la Plata…leading to observations about things north of the Rio Grande…     

One of the first lessons from a wrecked economy with a 99% inflation rate is that…it’s not so bad. People still eat…smile…wear fashionable clothes…enjoy music and read books.

Yes, of course, government policies are idiotic. Corruption is widespread.  And everyone, trundling along on the road to ruin, gets poorer. But they don’t necessarily have a bad time.

Red Hot Pesos

There are cars and trucks on the road here, belching smoke, mufflers and bumpers falling off, that would never be permitted in a healthy economy. People live in ‘favelas’ – slums, where the houses are improvised, temporary, and unfinished. There are trash pickers, cartoneros, who survive by reselling cardboard and eating the food that has been thrown away. And many things are remarkably cheap.

It is this last feature that helps to make life agreeable. Nice apartments rent for only a half to a third as much as in the US. A cook or housekeeper, full time, costs only $100 a month. A trip across Buenos Aires costs about 1,000 pesos – or $2.50. And fuel, too, is only a fraction of the price in the US or Europe. A gallon of gas is about $1.50.  

Last night, we went out to dinner in our old neighborhood, Palermo Soho. We hadn’t seen it in a couple years. But things change fast in Buenos Aires. The streets were full of people – people going to bars and restaurants…shoppers or just people out for a walk.

“You have to understand,” says a friend. “People want to spend their money. Nobody saves it.”

We barely recognized the old neighborhood. The shops had changed, with new bars, restaurants, shoe stores and fashion shops on every street corner. It was bigger, with more people….and more things to do… than we recalled.

(More scenes from Palermo Soho, near Bill’s favorite restaurant, Lo de Jesus. Source: Joel)

Biting the Hand that Feeds

It also seemed more woke…more ‘leftist’…and more activist. Socialism has become a fashion statement. One restaurant had a neon sign, for example, that proclaimed that “Capitalism is a failure.” Pictures of Che Guevara were almost everywhere.  

We walked down the cobblestoned streets to the corner of Guruchaga and Cabrera. There, we found our favorite restaurant, the Lo de Jesus. But that too had changed. It used to be a small, corner eatery with local customers and a simple Argentine menu. But now it has spread out into the street, serving hundreds of meals – to tourists. It has become one of the city’s popular go-to restaurants. A large group of Americans sat at the table behind us. All in the 20s or 30s, most were rather nerdy looking; we guessed that they worked for Google or Facebook.  

A street musician came by. A short man, dressed in black, with a white fedora, he pulled out his guitar. We feared the worst – that he would be screeching out popular tunes as we tried to talk. But we were happily surprised. He was a concert-level guitarist playing our favorite tango music – Por una Cabeza, El Dia Que Me Quieras…and a marvelous tune by Piazzolla which requires a remarkable level of skill to perform.   

Other diners recognized his talent too. When he was finished he was showered with 1,000 peso bills.  

Disappointed by the changes in the restaurant, we were nevertheless impressed by the food – it was almost as good as ever. We ordered an elaborate selection of starters – dried ham, blood sausage, salads. These were followed by steaks, with vegetables…and 2 bottles of Piattelli wine (there were 5 of us).  

We should tell you something about Piattelli. It is a winery in the Calchaqui Valley that is owned by a family from Montana. They invested a fortune creating one of the best “bodegas” (wineries) in the valley. The restaurant was superb when we went there a couple of years ago. The wine is excellent too.  

The meal concluded, the check arrived. Oh no…it was for 100,000 pesos. Our first reaction was shock. We are still adapting to the monetary system. Then, we did the math. Dividing by the black market rate, the whole thing came to about $53 per person. In a non-tourist restaurant, the same meal might be half as much.

The Other Half

But numbers never tell the whole story. They leave out the most important parts. There is the price of food, but there is also the taste of it. Who puts a price on a kiss? Who calculates the value of a kind word? Who charges for the sunrise?

There are averages, but nobody lives the average life. People live in their own particular world, with a quality all its own. And the quality of a place, too, is often missed by the numbers.

Stalin noted that ‘one death is a tragedy; a thousand deaths is a statistic.’ And that is the problem with Stalin’s world. It was a world of tragedies – millions of them. The misery was recorded in memories and memoirs, but not in the statistics.   

That is what makes fraudsters out of world improvers, activists and central planners everywhere. They have numbers. They have statistics. But they don’t know what they’re talking about.

Here at Bonner Private Research, as long-term sufferers know, we don’t trust numbers – at least not those used to justify public policies. That’s why we rarely provide a forecast, estimate or calculation without a qualifier: “about” or “around.” Because the numbers seldom tell the truth. And the more precise the number, the bigger the lie behind it. Unpack the math – even our own – and you find assumptions, adjustments, and enough statistical wiggle for an earthworm farm.

We don’t trust any number or any fact – even those we make up ourselves.  

So, tune in tomorrow. We’ll look at the biggest scam in statistics – GDP – and the latest fraudulent numbers from the Congressional Budget Office.

Hasta manana.

Bill Bonner

Joel’s Note: Readers may recall the hoary adage, “it could never happen here!”

You hear it whenever tales of woe from some far-flung “sh!thole” bubble to the surface of polite conversation. War in a foreign land… currency debasement in a distant country… rigged elections, brawls in parliament, suppression of basic rights, like freedom of speech or movement or right to a fair trial… always happening “over there.”

And yet… in the mid 20th Century, “to be rich like an Argentine” was another line people used to use… only, without irony. The “Paris of the South” was among the wealthiest metropolitan capitals on the planet. When Ayn Rand was looking for a bazillionare playboy for her Atlas Shrugged novel, she created Francisco d'Anconia, owner by inheritance of the world's largest copper mining operation… and the very caricature of a rich, polo-playing Argentine businessman.

It must have seemed to the denizens of the bustling city, back in the 1950s, that their standard of living would last forever. A yet, an unhurried stroll along the city’s broad avenidas and cobblestone calles, lined with umbrageous jacarandas and neo-classical mansions, many now fallen into dreary disrepair, reminds us that nothing lasts forever…

That goes for political standing and economic vitality north of the Rio Grande just as it does south of the Rio de la Plata.

Last week, the US Treasury Department Issued its Financial Report of the United States Government for 2022. It was… concerning. As usual, Bonner Private Research’s macro analyst, Dan Denning, was hard on the case from his bolthole up in Laramie, WY.

The government had a 'negative' net position of $34.1 trillion last year. Total liabilities were $39 trillion ($24 trillion marketable public debt plus almost $13 trillion federal pension and veteran benefits). 

Debt-to-GDP would reach 566% by 2097, based on 'current policy and the report's assumptions.' The report describes that level as 'unsustainable.' 

Lastly, the present value of future social security and medicare spending is expected to exceed receipts for that spending by $75.9 trillion over the next 75 years. I believe that's what we call 'unfunded' liabilities.

Hmm… seventy-five years may seem like a long time. Surely it will be someone else's problem by then, right Dan?

“Wrong. It will be a bigger problem a lot sooner.”

Dan notes that, while some inflation may be “good” for reducing the real value of government debt (through financial repression), “if deficits grow faster than the decrease in real debt from inflation, you negate the benefit. And if the Fed obeys the Taylor Rule and pushes nominal yields above inflation, debtors get crucified.

“In America, we are all debtors.”

What does that mean for households already struggling under rising (and still rising) mortgage rates… stubbornly non-transient consumer price inflation… and a worsening economic outlook?

Financial ruin: It really can happen here… but it doesn’t have to happen to you.

Right now, Dan’s busy updating The Dollar Report, one of the many resources available to help guide Bonner Private Research members through the coming debt reckoning. Join our project and protect what’s yours, here…