The Democracy Trap

Politics, geopolitics, megapolitics... and election time in the land of the gauchos...

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Bill Bonner, reckoning today from Youghal, Ireland...

“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."

~ Alexander Fraser Tytler (15 October 1747 – 5 January 1813) 

Politics…geopolitics…megapolitics…

B.S., theft and murder. But now, they come at us hard and fast.

In Argentina politics is front and center – along with an historic test of democracy itself.

In the Ukraine, the geo-political ‘game’ brings joy to a few…profits to some…and misery to many.

And in the US itself, megapolitics sink the empire.

Today, we look at politics…in the land of the gauchos.    

We admit a prejudice. We have a special affection for Argentina and live there part of the year. And what a learning experience! Every dopey policy…every jackass program – the Argentines have tried them all.

Democracy: Testing, Testing…

Yesterday came news that the peso is plummeting again, the dollar is soaring, and the central bank raised its lending rate to 118%! But it is still behind the actual inflation rate, believed to be around 120%.

What’s new? Inflation is a very old story. It’s how the elite transfer power and money to themselves – beyond what they can get from taxation and borrowing.  

But since inflation so obviously harms the common man…and since it is the common man who ultimately prevails in an election…democracy requires a level of fraud not normally seen in a monarchy or an autocracy. And now, in Argentina, we are witnessing an important test.

We know inflation can be stopped. Paul Volcker did it in 1980. But Volcker was not elected. Inflation peaked at only at 13%. And the national debt was less than $1 trillion.

Even then, it was a close call. Volcker pushed the key Fed rate up to 20%.  Politicians and activists howled. They called for his head and burned an effigy of him on the Capitol steps. They said he was ruining the economy. 

Ronald Reagan had just been elected; he had a few years before he had to face the voters again. He stuck with Volcker and the job got done.

Today, that scenario is almost unimaginable. The national debt is almost $33 trillion.  Households, businesses, investors, and the government itself – all are hooked on cheap money. And neither major candidate for president – Biden nor Trump – favors a return to balanced budgets or ‘hard’ money.

Thank God, the masses are so easy to bamboozle. They think inflation is caused by capitalist ‘greed’ or ‘supply chain disruptions’ or foreign suppliers – the Chinese!

Burning Down the Bank

But after many years, these miscues lose their appeal…and voters begin to suspect that it is the politicians themselves who are to blame. Then, a ‘vote the bums out’ movement takes hold…and enterprising politicians promise reform.

Usually, the ‘reform’ candidate is just another bamboozler. But the voters can’t tell the difference. Donald J. Trump, for example, is no real reformer. But he plays one on TV and that is enough for many voters.

Real reformers, on the other hand, pose a threat to the Elite Establishment.  

In Niger, the elected president seems to have threatened the power of the military. So, the generals locked him up.  

And in Pakistan, here’s the latest. The Cradle:

In a striking judicial development on 5 August, a court in Islamabad handed down a significant verdict against former Pakistani Prime Minister Imran Khan. The court found him guilty of a serious lapse in his responsibilities, specifically his failure to report the sale of state gifts on his income tax and asset declaration forms.      

Consequently, the popular politician and former cricket star was sentenced to three years in prison and, notably, was further disqualified from seeking public office for a minimum period of five years.

Cometh Javier Milei in Argentina. He has 5 dogs named after economists. He used to play guitar in a rock ‘n’ roll band. And now he delivers fiery speeches, proposing to burn down the central bank and do away with the peso altogether.

A Fruitful Alliance

We have a financial research business in Buenos Aires. There, as here, we publish ideas and opinions that are out of step with the mainstream press. When he was just beginning his long-shot campaign, Milei contacted us. We – our local CEO – introduced him to former Argentine president, Mauricio Macri. It now looks like a fruitful alliance.

Milei proposes to do away with welfare, streamline the military and cut government spending to an affordable level – the very opposite of what the masses generally favor. And yet, in the primary election on Sunday, he stunned observers with a victory. TIME:

Far-right populist Javier Milei rocked Argentina’s political establishment Sunday by emerging as the biggest vote-getter in primary elections to choose presidential candidates for the October general election in a nation battered by economic woes.

Milei, an admirer of former U.S. President Donald Trump, says Argentina’s Central Bank should be abolished, thinks climate change is a lie, characterizes sex education as a ploy to destroy the family, believes the sale of human organs should be legal and wants to make it easier to own handguns.

With around 92% of polling locations reporting, Milei had around 30% of the total vote, according to official results. The candidates in the main opposition coalition, United for Change, were at 28% and the current governing coalition, Union for the Homeland, had 27%.

Celebrating in his election headquarters, Milei vowed to bring “an end to the parasitic, corrupt and useless political caste that exists in this country.”

“Today we took the first step toward the reconstruction of Argentina,” he said. “A different Argentina is impossible with the same people as always.”

Whoa! 

It was just a primary. And veteran politicians, their pet reporters and their hit men have ways of sidelining real reformers. But the election is worth watching. The masses usually want something-for-nothing. Politicians who promise to deliver it get elected. Those who tell the truth are defeated. Or worse.

Can a popular democracy ever escape the trap described by Mr. Tyler, above? We’ll find out.     

Regards,

Bill Bonner

Joel’s Note: As usual, the feckless neckties in the mainstream presses reacted to the election news in Argentina by seeking shelter in the false security of consensus-thinking. A casual Google search for “Milei” or “Argentina election” returns a sluice of slander, snide ad hominem and the exactly kind of lazy, rank-n-file “reporting” for which the media has become so deservedly detested in recent years.

Sr. Milei, a self-described libertarian, is invariably introduced as “hard-right”… “far right”… “extreme right”… “ultra, über, super-duper right”…

So too for all the other labels reflexively assigned to any position right of Chairman Mao… a “threat to democracy,” “conspiracy theorist,” “this-denier,” “that-phobic,” and all the rest.

We’ll have more to say about the sorry state of the once-proud Fourth Estate, in Argentina and elsewhere, in this weekend’s Sunday Sesh… but for now, it’s enough to know that the toadies are croaking as expected.

Meanwhile, we recall speaking with Bill’s CEO, Federico Tessore, down in Buenos Aires late last year. Reading back over the transcript of that interview, which we recorded for the Fatal Conceits podcast (and you can listen to here), shows just how out front of this story Fede and his team have been.

Here’s a snippet of Fede’s analysis…

I have been very negative about Argentina for many, many years, but now I'm changing. I think there’s a huge opportunity here in Argentina, regarding real estate and stocks…

I think that next year [2023] we have elections here in Argentina and it'll be very difficult not to have a very big change in the political landscape. And I think that a more market-friendly government is going to come. I'm not saying that Argentina is going to transform suddenly into Switzerland. But I think that we can be a more Latin American country. So if that happens, if the government changes, I think that stocks are going to go up very, very quickly. And also real estate…

We’ll be back down in Buenos Aires just in time for the bread and circus election season in October. Hopefully we’ll be able to have Fede back on the show for an update. Stay tuned…