The wrong medicine

The doctors were called, the patient was very sick, but not life-threatening. They unanimously diagnosed too much debt as the cause of the illness and described restructuring instead of reviving his bloodstream economy.

Then came Father Peron, who didn’t believe the doctors. So he called in his own team of specialists, and their diagnosis was that only a strong blood infusion of fiat money would be the best remedy for a quick recovery and revival of this patient.

These specialists, against the opinion of a minority of well-trained, logical doctors, caused the wrong medicine to be prescribed and administered to the patient, named Peso.

The infusion of taxpayers’ money poured trillions of pesos into the system of the already haemorrhaging patient, guaranteeing its salvation and avoiding the collapse of its payment system, which would otherwise have caused a depression, as was seriously considered.

Argentina was once one of the richest countries in the world.

Back in time, as the 1800s drew to a close and the world moved into the 20th century full of innovation and optimism, there was perhaps nowhere on the planet, apart from the United States, more admired and envied than Argentina.

Indeed, like America in the late 1800s and early 1900s, Argentina was teeming with immigrants from all over the world seeking a better life in this land of opportunity.

Argentina was already a rich country. And it was getting richer so fast that its economic growth even outstripped that of the United States.

By 1900, Argentina’s economy was bigger than the rest of Latin America put together, and about the size of all of Western Europe put together. There seemed to be nowhere to go but up.

It was also rich in natural resources, from fresh water to some of the world’s most fertile soil and vast oil and gas reserves. Argentina should have been unstoppable. It still is;

Argentina has one of the largest shale reserves in the world and has quadrupled its production in the last five years.

You’d have to work really, really hard to screw up that kind of wealth potential. And they did!

Stupid centralisation

For much of the 20th century, Argentina slipped into severe economic decline and remained so for decades, largely due to corrupt, excessive, outrageously irresponsible government spending and idiotic central planning.

Hyperinflation set in, the banking system collapsed and the economy was mired in a prolonged depression.

First budget surplus since the golden years of the early 1900s

When the new chainsaw-wielding president, Javier Milei, took power last year, he promised to change everything. And so far, the results are hard to argue with.

This year, Milei announced that Argentina had just run a budget surplus – its FIRST surplus since the golden years of the early 1900s.

That’s no accident. Milei has abolished entire government departments, fired ministers and drastically reduced the size and scope of government.

In his announcement, Milei didn’t hold back, calling his predecessors “fiscal degenerates” for ballooning the national debt and running massive deficits. These deficits, of course, were largely financed by the Argentine central bank, which printed all the money and created inflation.

Milei said that just last year his predecessor printed enough money to equal about 13% of Argentina’s GDP. Well, if printing 13% of GDP qualifies as fiscal degeneracy, then the Federal Reserve in the United States is guilty of the same thing, but TWICE.

• The first time was in 2009, during the global financial crisis. Under then chairman Ben Bernanke, the Federal Reserve created trillions of dollars of new money, about 15% of GDP, to bail out the big Wall Street banks.

• The second time was during the pandemic in 2020 and 2021, when the Fed printed around 14% of GDP.

This reckless money printing has not only caused historic inflation in the US, but has also created enormous problems for the Federal Reserve itself. The Fed is now wildly and hopelessly insolvent.

And this isn’t some wild conspiracy theory; it’s a fact straight from its own financial statements.

Here’s how it happened

Going back to 2008, and especially during the 2020-2021 pandemic, the Fed created trillions of dollars and then used that money to buy government bonds. At the same time, it cut interest rates to zero. The net result was that the Fed now holds trillions of dollars of bonds at the lowest yields in history.

But then, in 2022, they suddenly reversed course and rapidly raised interest rates from 0% to more than 5%.

Well, if there’s one thing you need to understand about bonds, it’s that higher interest rates cause bond prices to fall. So when the Fed raised rates, it also caused the value of its bond portfolio to plummet. And “plummet” is a rather polite way of putting it.

As it stands today, the Fed faces net unrealised losses of $818.4 billion on all the bonds it bought during the pandemic, far more than the mere $44 billion it has in equity.

According to its own financial statements, the Federal Reserve is literally insolvent.

In fact, at nearly $1 trillion, the Fed is the most insolvent bank in the history of the world.

Talk about fiscal degeneration

Now the Fed has only a few options:

• One, ignore the problem. Continue to pretend that the insolvency of the world’s largest and most systemically important central bank is no big deal.
• Two, ask for a bailout: Go to the Treasury, hat in hand.

The problem is that the Treasury doesn’t have any money; in fact, the US government is already overspending by $2 trillion a year and has to borrow most of that money from the Fed.

So a bailout would require the Fed to print money, lend it to the Treasury, and then the Treasury would lend it back to the Fed. Talk about bizarre.

• The third way is to lower interest rates.

Lower rates mean that the value of the Fed’s bond portfolio will rise, reducing the Fed’s near-trillion-dollar insolvency. But lowering rates would only invite more inflation.

Inflation is already creeping back. Just last week, the latest report showed an increase in the inflation rate, with signs that it will continue to rise. Yet the Fed has all but promised to cut rates again next week.

What’s clear is that the Fed is abdicating its responsibility to rein in inflation and maintain a sound currency. Instead, it’s inflating its way out of insolvency. The result?

• Every single person who uses US dollars will end up bailing out the Federal Reserve through higher inflation.

And that is why real assets like gold and silver are an excellent inflation hedge, which makes so much sense, especially with so many high quality real asset producers selling at ridiculously low valuations.

All this contrasts with Argentina, where Javier Gerardo Milei has scored a major victory for his country, which has already emerged from a recession brought on by public spending cuts and is now growing at a dramatic 3.9%.

The country’s stock market is up 174% this year. Monthly inflation has fallen from 25% to less than 3%.

First El Salvador, now Argentina: where courageous right-wing leaders do what progressive elites say ‘cannot be done’, where each immediately and dramatically improves their country’s economic finances.

Think about it and draw your own conclusions!

Javier Gerardo Milei (born 22 October 1970) is an Argentine economist and politician. President of Argentina since 2023.

https://en.wikipedia.org/wiki/Javier_Milei