The Uncontrolled Government Spending In US It Could Cause A Recession- Lessons Americans Can Learn From Argentina’s Economic Collapse for SHTF in the United States

 Argentina’s spectacular December 2001 economic crash and default were the culmination of a debt-led development process that began in the late 1970s. Much has been written about the crisis and its causes, and many interpretations have been put forth as to why it occurred. Despite overwhelming empirical evidence to the contrary, the International Monetary Fund (IMF) and the financial establishment still claim that the root cause of Argentina’s crisis was the public sector’s inability to reduce its deficit. Other explanations have included the more esoteric “debt intolerance” concept, or that the default itself was the cause of Argentina’s 2002 economic collapse.

This paper argues that none of these explanations hold up under scrutiny. Rather, the December 2001 default and economic crisis were the logical outcome of a massive debt accumulation process which resulted from two main factors. First, the negative effects of policy prescriptions by the international financial institutions (IFIs), particularly the IMF and the World Bank (WB), enthusiastically implemented by Argentine officials. In other words, US-trained Argentine officials and IFI staff acted like a team in which there was a high degree of agreement on the economic policies to be implemented. Second, a series of exogenous shocks which ranged from US interest rate hikes to financial crises in Asia, Russia, and, finally, Brazil. These shocks led to spiraling costs of public sector borrowing and to massive capital flight as the system unraveled.

The combination of inconsistent macroeconomic policies and exogenous shocks led to an economic collapse of historical proportions in December.

Argentina’s Debt Crisis

As America heads towards an economic collapse due to its crazy national debt and runaway spending, we can learn some great lessons about how to prepare for the SHTF (Sewage Hits The Fan) that is to come by looking at what happened to Argentina

In 2001, Argentina plunged from being a very wealthy country with a large middle class to a country where the middle class all but disappeared. It was all due to uncontrolled government spending. Since the situation is so similar to what we have here in the United States today, the lessons learned are especially pertinent.

The first lesson to be learned from the economic collapse in Argentina is that desperate people will do desperate things. People took to the streets protesting what they saw as the robbery of the middle class by the banks and the betrayal of the politicians. Civil unrest became a common occurrence, as people who saw their bank accounts and retirement plans evaporate suddenly had nothing left to lose.

In addition, as the situation dragged on, more and more crime became commonplace. It wasn’t just robberies in bad neighborhoods, but more sophisticated burglaries in previously safe neighborhoods as well. People learned that their homes were being staked out and, when all the members of the family left and the house was vacant for a few hours, they could come home to a house that had been stripped.

In addition, a new term “express kidnappings” was coined. Instead of just kidnapping rich people where a huge ransom could be demanded, thugs started kidnapping people of more modest means and demanding only a couple hundred dollars. They would drive the around in a cab all day until a phone call to their home produced some sort of a payoff, and then they would move on to the next victim.

Express kidnappings were very smart financially for the bad guys, as the amount of money taken would not warrant a huge investigation from the overburdened police force. And if they knew what they were doing, they could pull off a couple of these every day.

Another thing that became commonplace was that former middle class people became unlicensed “taxi drivers” using their minivans or luxury cars to drive people to work or the airport. Others tried their luck to get work as a handyman. Women did nails and cleaned houses. People worked for a fraction of what they used to make, just so that they could feed their family.

Those looking for economic opportunity in a post-economic collapse society found that the teaching (especially vocational studies where you would teach a trade) and counseling professions did well, as people needed to get new skills to work and needed counseling to cope with a world turned upside down.

Another unfortunate development was food shortages and power outages. Although there was technically enough food for everyone, in the tumultuous times where prices could jump 10% in a week for some items, no grocery stores wanted to sell out of their products. Therefore, it became common for store shelves to be empty, as a lot of stock was held in reserve.

Power outages occurred as the utilities and local governments were strained financially with so many people unable to pay their bills and taxes. So infrastructure repairs and maintenance were neglected, leading to less reliable services.

There is a lot to consider if you want to prepare for an economic collapse in the United States. The best way to begin your “preps” (that is a term that preppers use) is by first analyzing what has happened before so when history repeats itself, you will be ready instead of having regrets.

Conclusions

In the view of some observers, Argentina’s debt position would have been sustainable if only market uncertainty had not triggered a crisis. While there is some truth to this view, it does not take into account the fact that Argentina could have reduced its vulnerability to potentially destabilizing shifts in market sentiment by aggressively reducing its public and external debts. This is illustrated by the contrasting experiences of Argentina and Asian economies like South Korea. With much lower debt levels, the latter is less likely to experience adverse shifts in market sentiment and is less vulnerable to them should they occur.

Cutting Argentina’s public debt requires reductions in government spending, tax reforms designed to increase government revenues, and policies to stimulate export growth over the medium to long run. The successful adoption of such policies is the key challenge facing Argentina and a number of other emerging economies, and it is an important prerequisite for achieving stability in a globalized economy.