As I wrote yesterday, government interventions in the marketplace and out of control cronyism have decimated Argentina, one of the most prolific economies of the early 20th century.
But after my week spent there, I can tell you the people of Argentina face an even more troubling problem. It's out of control inflation and it continues to grow worse.
And while it seems far removed, it provides a stern warning to anyone who thinks the U.S. is somehow immune to it all.
In fact, it's critical to understand what's behind it and how it is driving a massive gap between the rich and the poor there.
To tell you the truth what I found there was somewhat startling.
The Dangers of Runaway Inflation
The international Argentine peso rate to the U.S. dollar sits at 5.2 pesos per $1. But the unofficial black market (known as the blue market domestically) is twice the official rate.
In the "blue market" it's roughly 10.5 pesos for each US dollar.
I know this because virtually every single student, shopkeeper, waiter, or any person trying to get by, was interested in buying every single greenback I had in my wallet.
It's because average Argentineans are effectively prevented from owning dollars, and out of control inflation is decimating their peso. With such uncertainty, for them, it seems like a bargain.
The fact it any traveler heading into Argentina can make at least 80 percent on their money by selling dollars to regular citizens on the black market, and flipping the Argentinian pesos back into U.S. dollars at the airport.
But it's not just tourists arbitraging on the desperation of the middle class in Argentina.
It's businessmen, politicians, and anyone who has access to the American dollar.
Meanwhile, hard-working Argentineans are practically restricted from owning or accessing dollars since all customer bank withdraws must be made in Argentine pesos.
Of course, a simple solution would be ditch the peso and dollarize the economy.
But the illegal currency trade is so lucrative as of late, that I was told on more than one occasion that the blue market is the reason why "Buenos Aires has a lot of millionaires and no businessmen."
Now ordinarily, the International Monetary Fund usually lifts its head to countries with this sort of inflation and attempts to help put a nation like this on the right track. But the reality is that the IMF probably wants nothing to do with Argentina these days.
The previous loans may have been paid back, but the nation doesn't really seem committed to changing a thing. And unless Argentina liberalizes its economy and facilitates greater free trade, the IMF isn't likely to get involved offer new support.
When your track record is to default on sovereign debt, it's hard to get anyone to care much about your problems.
Not surprisingly, the nation's 2002 default has fueled a lack of access to capital. Despite the immense amount of opportunity in the agro-sector, global investors aren't willing to take the risk. And businesses don't have the means to expand as a result.
In Argentina, there is no such thing as a five-year plan. In fact, there's never a Plan B either.
Everyone is constantly working on Plan A because government policies change in their sleep.
In the end, it leads to an important lesson-for them and for us.
Cronyism, excessive debt, business instability, and hierarchy are the drivers of Argentina's descent. And unless the people of the United States look up and realize that not only are they not immune from such factors, but that these issues have grown increasingly more pronounced in the last 10 years, we could descend into a full-blown crisis that rivals Argentina in the future.
The Key Takeaway For Investors
Black market arbitrage of U.S. dollars and pesos has been a lucrative game for international travelers, but for international investors, we'll take the more cautious and profitable approach.
When you travel back from a place like Argentina, you compare and contrast policies, business environments, and ultimately the opportunities they present. It makes you look at the world in a different way.
And when you spend your days as an economist, you start to think about the strategies that investors can use to take advantage of the global markets by turning the probabilities in their favor.
The good news is the experts here at Money Map Press have those answers.
The first is Martin Hutchinson, whose emphasis on economic freedom and friendly business environments makes it more possible to predict future returns and market stability in foreign nations.
Business freedom may be the sharp decline in Argentina, but Martin has identified profitable opportunities in more economically free nations like Chile, Peru, Canada, and Japan. His strategy is to ignore those emerging nations that fail to provide a predictable, favorable business environment. That reduces risk and better ensures long-term stability.
The second is Keith Fitz-Gerald's Money Map Method.
Keith's 50-40-10 allocation strategy ensures that your money is protected in companies with a global presence and an understanding of how to navigate an ever-changing business world. In addition, Keith also focuses on the best blue-chip companies that allocate their business focus in order to capture steady returns in unstable markets, and maximize on places where governments don't treat their businesses like beasts of burden.
These two investment strategies are the sort of concepts that American investors should take for granted and execute on a daily basis. While Argentina remains a land of contrast, American markets still offer the greatest levels of stability, liquidity, and opportunity. And that isn't going away any time soon.
With Argentine government allies and those who know how to game the system getting richer, and the middle class eroding due to government policies and burdensome regulation, the future remains uncertain.
We in the states raise concerns about this all the time. And while the United States faces greater regulatory uncertainty in the future, both nations are rich with entrepreneurs and new ideas when a shift toward a more business friendly environment takes place.
The United States would benefit by looking around from time to time and realizing that we are teetering on the edge. Argentina's eight-decade decline provides a staggering warning to those who think "it can't happen here."
We're far off, but it always is important to remain vigilant and to have a true strategy. You can learn more about Money Map Press by clicking here.
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