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USA or Argentina?

Do they talk about the US or Argentina, that’s the question I asked to myself when I was reading this: Now the USA has a “faux” budget.

Irresponsibility? Check.

Dishonesty? Check.

Stupidity? Check.

What was it again, “Hope and Change”?

Change? Yeah, they abolished the 230-year old practice of putting a yearly budget together in time.

Hope? Well, as an American citizen, you certainly need lots of it now.

Before the 1970s, the US government, like many other industrialized countries around the world, run budget deficits only during wars (which is, kind of, understandable). Then, however, in 1971 President Nixon decoupled the dollar from gold. That finally made it possible to run budget deficits year after year after year. The gold (exchange) standard prevented this because investors sold dollars for gold as soon as they thought that the deficit might be monetized (printing money to pay for it). This in turn destabilized the dollar-gold link and forced bankers and politicians to take necessary actions in order to resolve the credibility problem.

But nowadays we have a free printing press, so if the government can’t pay, we can still print our way out, at least for some time. As with unruly children, politicians seem to be overchallenged with so much freedom, though we should also recognize that the voters approve of this. They would vote any politician out of his office if they deem him responsible for a recession. This is why politicians do everything they (think) they can to fight recessions or to prevent unpopular payments to the banking sector.

The problem with this irresponsible behavior from both politicans and citizens is that we are going to pay for it, either through lower growth for a couple of decades, or through hyperinflation, or both. Just have a look at the economic and political history of Argentina and you’ll se what I mean…

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