An Argentina-like Economic
Crisis
By Scott Strzelczyk
AmericanThinker.com
The United States'
economic decline precariously resembles Argentina's economic collapse, which
started in 1998 and landed Argentina in a depression by the end of 2000.
What began in Argentina as a recession mushroomed into a full-fledged
depression due to bad economic and monetary policy. The
Obama
administration and its congressional Democrat lackeys are on the precipice
of following Argentina's disastrous economic and monetary policy decisions.
Arguably, the United States economy has been in a
two-year-long recession, and while some may posit that the country has
started an economic recovery, others suspect the country will plummet into a
deeper recession, or perhaps a depression. In the past two years, the United
States government instituted economic and/or monetary policies detrimental
to American's short- and long-term economic prosperity.
- $700-billion TARP
bill.
- $787-billion
economic stimulus bill the president deemed necessary to keep unemployment
under 8%.
- $410-billion
Omnibus bill with 9,000 pork-barrel projects.
- $1.3-trillion
deficit in fiscal year 2009.
- $1.4-trillion
deficit estimated for fiscal year 2010.
- $1 trillion or more
for a health care bill that the majority of Americans didn't want.
-
Auto industry bailout
with complete disregard to the bankruptcy laws, which turned the U.S.
government into an equity owner and granted an ownership stake to the United
Auto Workers union.
- $500-billion
bailout of Fannie Mae and Freddie Mac.
- $145-billion
bailout of Greece.
- Billions spent by
the Federal Reserve to purchase toxic assets.
- $10.6-trillion
dollar public debt the day Obama took the oath of office. In nineteen
months, the public debt stands at $13.3-trillion (a 25% increase).
In early 2000, Argentinean
President Fernando de la Rúa's government evaluated options to end the
recession. According to a
2003 report
issued by the Joint Economic Committee of the United States Congress, the de
la Rúa government evaluated several options and settled on raising tax rates
as the solution:
The De la Rúa government was worried about the
federal budget deficit, which was 2.5 percent of GDP in 1999. The
government thought reducing the budget deficit would instill confidence
in government finances, reducing interest rates and thereby spurring the
economy, which was showing signs of recovery in late 1999. Among the
options for reducing the deficit, cutting spending was politically
difficult; the government doubted that cutting tax rates would spur
enough growth in the short term to offset lost revenues; it did not wish
to abandon the convertibility system and simply print money[.]
That left only one option: raising tax rates.
President de la Rúa secured approval for three big tax increases, effective
January 2000, April 2001, and August 2001.
Argentina's
economy continued to shrink throughout 2000. In April 2001, the Argentinean
government proposed cutting spending by 4.5 billion pesos over a two-year
period. Public outrage ensued, and special interest groups protested.
Furthermore, government monetary policies manipulated current valuations,
causing fear and instability, and debt policies such as refinancing debt at
higher interest rates
exacerbated a deteriorating economy. In late 2001, a newly elected
government took control, and the Joint Economic Report summarized their
actions:
In a series of
blunders that made matters even worse, from December 2001 to early 2002,
succeeding governments undermined property rights by freezing bank
deposits; defaulting on the government's foreign debt in a thoughtless
manner; ending the Argentine peso's longstanding link to the dollar;
forcibly converting dollar deposits and
loans
into Argentine pesos at unfavorable rates; and voiding contracts
Coincidentally, the United States is in a
two-year-long recession, and Obama and congressional Democrats intend on
letting the Bush tax cuts expire at the end of the year. The outstanding
public debt stands at $13.3 trillion. Any opposing viewpoints from
Republicans or conservatives on cutting spending or addressing entitlement
programs are met with media outrage, accusations of racism, and accusations
that Republicans and conservatives are coldhearted people incapable of
compassion or benevolence.
The Obama government's actions ominously mirror
the actions and the timing of the Argentinean government in early 2000, when
the first of three tax increases was instituted. Higher unemployment, more
debt, falling wages, and eventually inflation ensued. Moreover, the Obama
administration and the mainstream media deceive the American people
regarding the impact of the Bush tax cuts. Obama and the MSM repeatedly
espouse that only tax rates for those rich Americans in the top income tax
bracket will increase.
Unfortunately, the truth is that all tax brackets
are impacted, and even the Obama lemmings will recognize they've been duped
when their payroll tax deductions increase in 2011 and their take-home pay
decreases. Perhaps then the lemmings will seriously consider what "hope and
change" means and that elections do indeed have consequences. A summary of
the Bush tax cuts expiring at the end of 2010:
- 10% bracket reverts
to 15%
- 25% bracket reverts
to 28%
- 28% bracket reverts
to 31%
- 33% bracket reverts
to 36%
- 35% bracket reverts
to 39.6%
- Marriage penalty is
reinstituted
- Child tax credit
cut from $1,000 to $500 per child
- Dependent care and
adoption care credits cut
- Estate (death) tax
returns at a rate of 55% on estates over $1 million
- 15% capital gains
tax reverts to 20%
- 15% dividends tax
reverts to 39.6%
Many economists recognize,
though they many not publicly admit it, that inflation is the only feasible
alternative. The government is limited to three possible revenue sources:
taxing, borrowing, and inflating. Any sensible person realizes the country
cannot tax its way out of a $13-trillion debt or sustain existing
entitlement programs, much less government-run health care. The government
borrows money by selling government-backed securities to investors.
Eventually, investors will either stop purchasing government securities or
demand substantially higher interest rates due to the increased risk. The
only feasible alternative is to monetize the debt -- in other words, inflate
it. Monty Pelerin's recent American Thinker
article
captured the essence of the problem:
The political
class's survival is at stake. Eventually, anything that extends their
rule will be tried. It is not concern for you or the economy that is
driving
policy, but the preservation of power of an increasingly wounded power
elite. Their survival is now driving policy. Unfortunately, what
benefits them is generally harmful for the economy.
Obama and congressional Democrats have chartered a
course leading America down an Argentinean economic path. November may be
the last reasonable chance to change course.
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