The U.S. as the New Argentina?

You just gotta read this if you want to be prepared for the post-meltdown world.

In this text, Charles Hugh Smith* conducts a little thought experiment.

Imagine you were part of the transnational elite class of the richest investors, and you know things are going terribly wrong. All the patches you have tried to keep a dysfunctional house of cards afloat are bound to fail. You and you’re fellow brethren know this, but you also don’t really know what to do about it, because the situation you have created is unprecedented …


No one knows what to do. Nothing like this has never been tried before. The financial world has never had ALL baseless currencies before, and never has a country as large as the US been brought down except during a war that exhausted all nations together. The risks are too high just to guess what will happen if we pull lever X instead of lever Y when the end comes.

So according to Charles Hugh Smith, the only thing you can do is conducting an experiment, or rather two, i.e. Argentina and Zimbabwe, the first because it was in many ways sociologically so similar to the U.S.

In other words, these crises did not just happen, they were also crucially ‘engineered’, by deliberate decisions of non-assistance by international institutions that could be expected to assist, and the reason they did not assist is precisely: ‘to see what would happen if”. Just before of course, those that knew, had massively expatriated their investments abroad.

The Argentinian experiment in this scenario, was to test what happens in the context of massive deflation:

“Once all the assets in the country had been discounted a minimum of 73%, the insiders then repatriated their money and bought their neighbor’s fortunes for pennies on the dollar, finding cheap, hungry, competitive labor, ready to compete with even 3rd world wages. The prudent, hard-working, and savers (the wrong people) were wiped out, and the money was transferred to the speculators and insiders (the right people). Massive capital like land and factories can not be expatriated, but are always worth their USE value and did not fall as much, or even rose afterwards as with falling debt ratios and low wages these working assets became competitive again. It’s not so much a “collapse” as a redistribution, from the middle class and the working to the capital class and the connected. …And the genius is, they could blame it all on foreigners, “incompetent” leaders, and careless, debt-happy citizens themselves.”

Charles Hugh Smith then asks the crucial question:

“Now I’m no genius here, but couldn’t the United States do the very same thing?”

And who would you do it with? With China and East Asia!!

Here’s the scenario:

“What you need to do is–and bear with me here–send your best Wall St. salesmen and diplomats to China and sell them a bill of goods about how they can “modernize” with our help. The Cold War is over. Capitalism reins. You know us Wall St. types! It’s all about the dollar! Have the radio scream the President sold out and sign them up to the WTO as you suck Asia into massive overcapacity and a deep, unbreakable reliance on the US and G-8 as customers while paving over the national independence of their life-giving water and farmland. Then, once they’ve tasted freedom and affluence, once they’re unable to support themselves independently, you pull the plug not on them but YOURSELF. Implode your own middle class as above. Kill the bond markets, cause a run on your own currency, and default on the debts you owe them. Hey, it’s the only thing you could do, right? Americans are just stupid, right? Wall Street is just greedy. It’s all an accident, an act of God really. No one’s to blame. It’s classic Judo.

In a single stroke you:

a) lose the burden of external debt

b) by devaluation lose your internal debt

c) make the nation competitive as a manufacturing power.

d) scare the people back into compliance, even exultation with their low wages.

e) with the renewal of manufacturing, re-cast the power that your military rests on

f) during a time of Peak Oil, radically reduce unnecessary consumption while insuring strategic (military) supply.

g) by doing that, suck in the oil powers of Russia, Iran, and Venezuela enough to knock them off-base, first with high prices, then low prices.

h) club China into submission to the G-8 money powers again
and best of all:

i) enrich insiders beyond their wildest dreams, insuring their dominance for a generation to come.

All the right people win, all the wrong people lose.”

Smith concludes:

“Any reason the US could not do this, and that everything these incredibly smart, ruthless, immeasurably connected people have been doing is actually not stupid but smart? And what if they believe what they’re doing is all for the good of the country and are willing to take any measure, any action no matter how awful or unprincipled, because it will put America back on top again? And if they get richer than Croseus in the process, well, who’s fault is it anyway? It’s hard work after all.

These Billionaires are the smartest, most unprincipled, double-thinking gamesmen in the world, playing the biggest, most dangerous games in the world, on a field where whole nations are at stake. They didn’t get to where they are by being stupid, taking chances, and making mistakes. You can be sure they’re not making them now. They have immense control in media, finance, military, government, business, and while every plan has risk and it might still get away from them, it sure won’t be for lack of trying. And that goes for the gamesters in China and every other country worldwide who are try every day to do the exact same thing to back to them. It’s the big boy’s game, and when the elephants fight, the grass gets trampled.

So when you’re reading the news about how randomly careless and stupid everybody was, just remember the Argentine plan: all the right people win, all the wrong people lose, and the good people never knew what hit them. The Royal Scam. “

In the process of explaining details in the longer original text. The author refers to the KaPoom economic theory, a realistic analysis of the current meltdown that predicts a massive inflationary process in the U.S., much on the model of what happened in Argentina, as this detailed comparison shows

We conclude with a smaller summary by Charles Hugh Smith, on why any belief in short term relief from this structural depression is misplaced, there are ten pins to burst the ‘green shoots’ bubble:

“1. Structural unemployment is skyrocketing.

Job Losses Moderate: But structural unemployment worsened. The number of people who’ve been out of work longer than six months soared by a record 584,000 to 5 million, accounting for more than a third of all unemployment for the first time on record.

“Structural” is a polite way of saying there won’t be any jobs for the long-term unemployed this year, next year, or the year after that.

2. The jobless rate declined because the work force shrank. This is typical smoke-and-mirrors statistics, courtesy of your Federal government: as people lose extended unemployment benefits, they are classified as “discouraged” and are no longer counted in the “headline” unemployment number.
Unemployment fell by 267,000 to 14.5 million, while employment fell by 155,000. The labor force declined by 422,000, which means the jobless rate declined because people dropped out of the work force, not because they got jobs. The employment-participation rate fell from 65.7% to 65.5%.

3. Everyone seems to have forgotten we need to create 250,000 jobs a month just to stay even with population growth. So while “only” 250,000 jobs were lost last month–never mind a big chunk of employment was linked to the “cash for clunkers” giveaway–that means we’re still 500,000 jobs short of a return to a rising employment scenario.

4. The interest on all the debt the nation is taking on to bail out bankers and “stimulate” the dead credit-bubble model will place a drag on growth far into the future. At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

Even with today’s dirt-cheap interest rates, the government spends over $400 billion on interest. Another couple hundred billion and we’ll be paying more for interest than we are for Defense or Medicare.

5. Interest rates are set to double. A funny thing happened on the way to borrowing “free money” in the trillions; there isn’t enough free money around for everyone to borrow unlimited amounts of it. So there’s actually more demand for surplus cash than there is supply of surplus cash. That sets up a supply-demand imbalance which leads to higher costs of borrowing. Nothing fancy here–even the Fed economists understand this.

6. Tax revenues are tanking. Government revenue is at its lowest level since the Depression, and most states are on the verge of bankruptcy. Tax revenues cannot be manipulated like unemployment and thus tax revenues and sales taxes are far more accurate measures of economic activity than other metrics.
Raising taxes is politically risky (see “insurrection” and “throw the bums out”) so what’s the only way to continue funding runaway spending? Print and borrow–which raises interest rates.

7. Normal accounting and reporting rules have been suspended. The U.S. financial markets are still a hall of mirrors; mark-to-market is still a pipe-dream; mark-to-fantasy reigns supreme as the easiest way to prop up insolvent banks’ balance sheets.

8. Commercial Real Estate is spiraling round the drain. Even mark-to-fantasy might not save banks when the tsunami of bad CRE loans hits in the coming months. Anyone want a faded-glory, half-empty, money-losing mall or three?

9. Consumers are retrenching generationally, not for a few months. Consumer credit (revolving and non-revolving) dropped at a 4.9% annualized rate in June, double the expected pace, indicating consumers continue retrenching and saving. Total outstanding consumer credit in June was $2,485 billion, $70 billion less than the $2,556 billion in June of 2008.

In the long years of bogus “prosperity,” consumer credit grew every month like clockwork. $70 billion isn’t much, but it’s the start of a trend which essentially dooms consumer-based, over-leveraged economies like the U.S. to years or decades of (at best) meager growth.

10. Residential housing is not healed; it’s still bleeding profusely. Nearly half of U.S. mortgages seen underwater by 2011. No collateral (as in, no housing equity) means consumers cannot borrow more money, even if interest remains at absurdly low rates (and it won’t).”

More information: If you want more troubling/revolutionary/annoying analysis, please read Survival+: Structuring Prosperity for Yourself and the Nation

(*NOTE: actually a ‘anonymous guest correspondent’ ?)

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