The Argentine economy collapsed. About 57% of the country’s adult population is currently unemployed.. The socialist nation has compensation programs that cost the country about $6 million a day. However, socialism no longer works when you run out of other people’s money. The inflation report for July showed an increase of more than 60%.
Harry Lorenzo, chief financial officer of Income Based Research, told The Epoch Times that the government’s fixed spending is exacerbating the problem by a factor of ten. “The Argentine government has been struggling with the collapse of the economy for some time now. The main reason for this is the government’s unsustainable spending, which is partly funded by generous welfare programs,” Lorenzo said. This is the same problem we see in the US, Canada, Europe and other countries where governments spend money with no intention of ever repaying their debt.
Argentina has defaulted seven times since independence in 1816. More recently, Argentina’s economy was already in shambles in the 1980s when the country faced a severe debt crisis and the currency depreciated. Inflation reached 2600% in 1989., and the country experienced hyperinflation in 1990. They decided to peg the Argentine peso to the US dollar in the late 1990s, which proved disastrous. Never in the history of economics has the anchor been kept, because the economy is not a flat line.
By 2001, the peso was completely devalued. US Treasuries and Argentine government bonds rose 5,000 basis points as banks ran out of funds. In December, bank deposits were immediately frozen, and people were left with nothing. The International Monetary Fund simultaneously announced that it would no longer support Argentina and cut it off from funding. This is when a nation loses its last connection with any foreign capital. The country had no choice but to default again at the end of December.
Various leaders who could continue to work promised that the government would provide the people with basic needs. By 2002, almost 60% of the country’s population was below the poverty line. By 2010, Argentina had restructured 92% of its debt. The nation tried to remove trade restrictions and attract investors – but who would need their debt? In 2018, the IMF provided Argentina with one of the largest financial aid packages in history, totaling $57 billion. The IMF again agreed to restructure $44 billion for the country in January of this year.
The problem with social programs is that there is never enough money. Rising inflation has increased the poverty rate and the average person can no longer afford an abundance of basic necessities like food. Residents of Argentina have been on strike for several months, many refuse to work. The government promised them social programs in exchange for a cut in their wages. Minister of Economy of Argentina, Martin Guzman, resigned at the beginning of the month. The Argentine peso continues to fall against the dollar, driven by the Fed’s recent interest rate hike. This is what happens when governments spend money recklessly, peg their falling currencies, and promise people security they can’t provide.