Argentina’s President Javier Milei announced a new exchange rate of 800 Argentine Pesos per US dollar, officially devaluing the peso by 54 percent.
The New Official Exchange Rate
“There Is No More Money”
Zerohedge reports “There Is No More Money”: Milei Announces 54% Devaluation Of Argentina Peso As “Shock Therapy” Plan Begins
The government had closed Argentina’s export registry Monday, a technical step that often foreshadows a currency devaluation or major policy change. The central bank also announced Monday the official currency market would operate with limited transactions — a restriction it said it will lift on Wednesday.
To be sure, nobody was surprised by the announcement, as a devaluation was long seen as inevitable. In the run-up to Milei’s inauguration, markets were signaling a currency drop of about 27% in the first week of the new government, while investment banks like JPMorgan and local private advisory firms suggested it could weaken about 44% . Grocers had already increased prices and banks were offering sharply weaker retail exchange rates hours before the Tuesday announcement. The question now is how many more times the currency will be devalued, and if Venezuela is any indication of what to expect, the answer is “lots.”
Argentina’s previously administrations had for years slowed the peso’s decline in the official market through currency controls and import restrictions in an attempt to protect dwindling reserves. That hodgepodge of capital controls has spurred at least a dozen exchange rates, hampering business and restricting investment in South America’s second-largest economy. On the campaign trail, Milei pledged to scrap the currency altogether, replacing it with the US dollar, however it now appears that that will be one of the many campaign promises he renegs on.
On Dec. 7, the prior administration had let the peso slip by about 5%, while simultaneously limiting the amount of greenbacks banks could hold in order to prevent them from hoarding dollars. The government had been burning reserves to keep the currency largely steady at 350 per dollar since the August primary vote, when Milei’s surprise showing sent markets into a tailspin. In parallel markets, that rate is about 1,000.
Purchasing Power
So, how much did purchasing power of the peso fall?
Gold Telegraph is not in the ballpark. In fact, it is not clear at all the Peso fell.
Understanding the Contradiction
- The “official” rate is not the real rate. One could not go into a bank and exchange at that rate.
- As Zerohedge pointed out “In parallel markets, that rate is about 1,000.”
If the rate stabilizes at 800, then purchasing power would have risen by 200/1000 or 20 percent!
It’s possible 800 won’t hold. But perhaps it does. But no one would exchange pesos at the previous official rate other than banks cheating anyone dumb enough to deposit dollars.
When Did the Loss Occur?
The peso was not instantly devalued. Rather, the devaluation officially recognizes a loss of purchasing power that happened long ago.
We will not find out until some dust settles if 54 percent was enough or too much.
Regardless, the actions by Milei will, at a minimum, slow any further declines.
Recognition of a spending problem is a very good start.
Javier Milei Takes a Chainsaw to Argentina’s Government
Yesterday, I noted Javier Milei Takes a Chainsaw to Argentina’s Gov’t, Eliminating Half as Promised
The newly elected president of Argentina, Javier Milei, just took a chainsaw to Argentina’s government. Congratulations to Milei for keeping a promise. The US desperately needs to do the same!
Wow and Congratulations!
I would like to see the US do the same, starting with the Department of Education and Department of Labor. Get rid of them.
Some readers accurately noted that getting did of departments is a pittance. That’s true. But we will also kill all of the siffling rules and regulations at the same time.
And I would slash the military budget as well. We wasted trillions of dollars in Iraq and Afghanistan and achieved nothing. What if we spent those trillions here instead of dropping bombs there?
Why are US troops in Germany and Japan and dozens of other places? At a minimum, if Germany, Japan, Poland and other places want US troops on their soil they should pay us. If they don’t want us there we should not be there. Syria comes to mind.
Killing collective bargaining for public unions and prevailing wages would reduce the costs on stuff we do build here.
We are going to have to do something about Social Security and Medicare.
Instead, Trump stands with Biden on both tariffs and Social Security. The latter is a tax on US consumers.
Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
On September 7, 2023, I commented Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
Within a few years the debt-to-GDP ratio of the US will topple highs set in WWII. This time, there will not be a huge baby boomer led recovery.
No One Will Fix This
Compromise is always more spending for this in return for more spending on that.
Bnd both parties want to spend more on the military.
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
Government Accounts for Nearly 25 Percent of All Job Gains in 2023
On December 10, I noted Government Accounts for Nearly 25 Percent of All Job Gains in 2023
Government jobs have been on fire the entire year.
The total job gains so far in 2023 is 2.552 million. Government jobs account for 636,000 of them!
US Chainsaw Needed
Can we please take a chainsaw to the US and State Governments?
But it cannot stop there. Collective bargaining, inane regulations, and even reduced military spending all need to be on the table.
Javier Milei gives us hope that it’s possible.
But it sure won’t happen with this crop of Republicans and Democrat losers.
Trump is no hero. The best we can say is he is better than Biden economically speaking.
Since that is saying next to nothing, it’s not a good start. We have not yet hit the recognition phase, or if we have, not enough for anyone to take any actions.
Rising debt under Trump is proof enough.
At first I thought that going to the USD was a decent idea considering the history & circumstanses. However, after listening to Putin’s comments about Milei going to the USD I now think it’s a mistake. They do need to have their own Currency, otherwise they will just be Vassals of the failing US Empire.
We could save this Country by cutting the MIC/DIB by about 90% if you look at what we spend TRYING to maintain Global Hegemony. We can either do this the easier way, or, we can do it the hard way. The hard way is going to involve a Civil War and utter immiseration and balkanization of our ‘Country’. Sad, very very, sad.
Alas, all this todo about a simple problem: living beyond your means. Whether personal or national, the only solution is to cut back inside your means until balance is restored – or you find a sugar daddy. Doesn’t matter whose fault, the consequence is the same.
Awesome!
So now a huge shopping spree for Argentina’s products begins!
And best part (for Argentinians) no buying of foreign products….. The investment dollars and entrepreneurship will be focused on their home grown or made products. And not buying expensive foreign made “American” or western world made products.
Simple policy.
I wouldnt be surprised if other western countries will also adapt a buy at home policies such as this one.
“Javier Milei gives us hope that it’s possible.”
Fat chance. If slashing government in any meaningful fashion was what he was after, he would have Dollarized. Or, honestly, if he had any clue at all, Gold’izing. The first mover advantage of using Gold is enormous: Gold will flow there for a while. Until savers worldwide realize what a blessing that is, and the metal will appreciate A LOT vs virtually anything else; in the process netting the first movers able to hold the line, a nice windfall.
The only reaon to devalue, is to bail out connected, deadweight zombies. Public as well as nominally “private.” At the expense of productive Argentinians. He stil hasn’t told even the IMF to go pound sand, fer csakes! Instead simply continuing the basket-case-continent’s obsession with robbing their productive class via debasement; in order to keep trashy banksters flush for another few years of pilfering. So much for “Anarcho-Capitalist.”
An actual anarcho-capitalistic MO would be to go to Gold. At a rate which bankrupts “everyone.” Including the central government. 95%+ haircut for any creditor, external as well as domestic. In order to get rid of all and every institution, arrangement, influence, wealth and powerbase built on the back of the incesant debasement over the past near-century. Hard reboot to effectively virgin, “rediscovereed” territory, with nary a single privilege carried across the chasm.
And also, especially being Argentina, no more prices in “Pesos”, since that would open up the door for future debasement. But rather prices quoted specifically in grams of standardized purity bullion. Tougher to BS widely accepted hard-science measures, than mere social arrangements like “conversion rates.” So: One Toyota: 2 grams of Good Delivery bullion.
An unforgiving currency like Gold, also forces the giving up of the undifferentiated scourge which is absolute-monetary-value “deals” and “contracts.” Forcing contracts; from wages to rents to near all else; to be about shares of whatever is there to pay with. Analogous to paying most “stakeholders” in any project/enterprise in equity, in finance terms. Which is vastly preferrable, since it avoids obscuring what projects are worth puruing and being part of the way cushioning everything with “too big to fail” credit invariably does.
But: It is Argentina. And Argentina is stil Argentinian for Basket Case. Milei gives very little indication that is about to change, despite at times talking a slightly less dysfunctional game in the election runup. I may underestimate the guy, but I doubt it.
Never been a better time to visit Argentina!
Beware – don’t count on being able to get cash from the ATMs… bring cash with you – USD.
“Reduce the costs”—-> reduce the wages. That’s what you’re really celebrating.
Argentina will force the country to not buy American, not buy western world luxuries…. And to have its population consider to make everything in country, again. It could work. If the president holds true tovhiavword. And encourage faith to grow its national economy. He stands a chance…..
Also means Argentinian goods and services are much more less expensive! Meaning orders for finished products should go through the roof. Or at least show growth, that other nations will envy and perhaps consider copying similar policies
“The best we can say is he is better than Biden economically speaking.”
Has anyone forgotten all of the new wars Trump got us into?
Ya but he initiated the deadly Covid Vaccine roll out
Buy silver, buy gold, buy blue steel, buy just about anything, but don’t hold cash…works in America too.
This is pretty ironic. Milei is implementing a draconian version of a typical IMF program, with himself playing IMF with a chainsaw.
Yup. So much for Anarcho-Capitalism…… But hey! That’s Peronistan: All self promoting caudillo bluster, no useful change whatsoever.
Cutting the value of the currency by 50% is amazing for Argentina’s exports. Buying American goods? Expensive…. Which should lead to making more things in Argentina…. Tourism is likely going to increase. Nothing wrong with doubling or tripling your tourism dollars….. He may have higher interest rates and fewer redu Dante govt jobs…. Though I suspect with the economy booming in a year or two? These people who got fired will find jobs… Or if needed will be rehired
If you have visited Argentina recently you know the tremendous toll that the continuous inflation takes. The average person spends many hours a day trying to minimize the effects by purchasing dollars on the street, by running from store to store to compare prices, by buying something now before the price goes up, etc. It is a difficult existence running faster and faster just to try (and fail) to stay in one place. It is going to be a difficult adjustment period.
Argentine Peso Chart. That’s a rocket shot parabolic curve.
Looks similar to the US debt chart.
“Looks similar to the US debt chart.”
And not by coincidence.
The entire Western “System”, is effectively nothing aside from a megascale rehash of Peronism.
Yes! Argentina may be smart to peg it’s dollar to the US dollar… It can now focus on exports and at home manufacturering
Not PEG to USD. PEG just means UNPEG next week.
“Smart” would minimally entail tearing down even the ability to issue local currency. Tax in Dollars, pay in Dollars, quote in Dollars, wages in Dollars, borrow in Dollars….. for a permadysfunction like Argentina, anything less is just another in the everlasting line of sad jokes.
Gold would be vastly preferrable still, but viewed from Argentina, even the Dollar would be a revelation.
Half the Argentine government employees purchasing power slid to zilch. They now fight over busy street corners wearing signs “WILL WORK FOR FOOD”. I never sucker for that one because I rather not violate minimum wage laws.
Good one! But, they wont have to work forminimum wage, they can learn to code!
The world is full of complex problems and people love to think that there are simple solutions. Politicians (and others) promote simple solutions that might seem appealing at first glance, but which cause more harm than good in most cases. For example:
Climate activists who promote “just stop all fossil fuel use now” are one example.
Or:
Just stop using all ICE vehicles now.
Just stop using the peso now and use the US dollar instead.
Just eliminate medicare now.
Just eliminate social security now.
Just stop all military spending now.
Just eliminate government now.
Just vote in my preferred candidate and everything will be fixed.
Etc
In many cases, this is what actually happens in communist countries and dictatorships.
China: Deng Xiaoping: Just bring in a one child policy.
Cambodia: Pol Pot: Just eliminate academics and education and return to an agrarian way of life.
Germany: Hitler: Just blame and eliminate Jews.
Hey! You left out Stalin and Lenin.
But I actually have the real solution: STOP accepting fake money as if it were real.
In an interview with Jeffery Sachs, he talked about his experience as an economic advisor to Argentina. According to him, Argentina’s balance sheet was actually better than the US’s yet, because of the habit and fear of inflation, it didn’t take much for people to lose faith and tank the peso. I think we are going to be expensive g a large devaluation of the dollar in the not too distant future. Got gold!
Not as long as we have the best: military, inventions, most currency pegs, no other currency is on the gold standard, and remain as the world’s reserve.
So what you’re saying is, if the Euro crash 90% but the US dollar only crashes 75%, then all is well? Also, in case you haven’t listen to Col. MacGregor and othe military experts, we don’t have the best military. We have the most expensive military. The army of today is a hollowed out version of what existed in the 1990s. Thanks to Biden and the stupid Ukraine war, Russia probably has the most powerful military.
the dollar crashes relative to what? As you said the Euro is worse off than the dollar. China won’t let the yuan rise, So what is left? The pound? The rupee? The Norwegian krone? The Swiss franc? Quatloos?
It doesn’t matter. There can be a scenario of no winners. I guess the consolation prize is the US will suffer less than someone else. I’d also argue that being the reserve currency is a double edge sword. What happens when everyone changes their mind from wanting dollars to dumping dollars?
Go away Boris. Russia has clearly shown they are a 3rd rate has been. Col McGregor is a Russian simp and has been wrong since the beginning of the Russian Invasion. Nobody believes or trusts him. He’s a Tool.
Russia has lost its Black Sea Flagship the Moskva, AND its Black Sea Fleet Headquarters to a Country that has NO surface Navy. They’re clearly not capable of holding the territory they initially occupied in and around Kharkiv. They’re clearly not capable of holding the land they lost around Kherson, including the City of Kherson. They’re rapidly losing their best troops and Missile Defense Systems, plus grinding down their conscripts and new “Volunteers” faster than they have in a year and taking almost no ground.
No US Warplanes, No major Advanced US Missile Systems. Mostly a lot of old semi-retired stuff that would have eventually been scrapped or replaced.
Also note that China graduates many more engineers than the US. Also some of our best engineers happen to be Chinese. The world has changed and while we were busy starting conflicts and wars others were focused on more productive things.
Chinese Unemployment for Young Men is massive. Their Real Estate Bubble is COLOSSAL and other countries and major corporations are moving manufacturing from China because of the Totalitarian Regime that can close down corporations (Chines or other) on a whim.
Nobody trusts China, even the Chinese.
What happened to dollarization?
it will take a while but it’s coming. For many reasons cannot be instantaneous.
It will be interesting to see how much economic pain Argentina will tolerate. There’s a reason democracies have trouble making and sticking with hard choices.
What’s up with this exert from the linked Zerohedge article above? Specifically the last sentence? Seems counter to cutting government, but maybe I’m missing something.
“…Other measures announced including halving the number of ministries, cutting transfers to provinces and suspending public works. The government will also reduce subsidies on transport and energy sectors, among others. At the same time, Argentina will boost certain social welfare programs, which in a few years time will surely grow to become the biggest fiscal addiction in the country under whoever is president then…”
“We wasted trillions of dollars in Iraq and Afghanistan and achieved nothing. What if we spent those trillions here instead of dropping bombs there?”
Two questions:
1) Who’s ‘we’?
2) What if ‘they’werent sent trillions of (fake, Fed) dollars in the first place?
What can we really expect when a centralized operation is allowed to take all of that from its citizens?
And now Ukraine and Israel.
“We” was done on the afternoon of 11/22/1963.
Mish,
what are your thoughts on the Freedom Caucus and its platform?
The freedom caucus is officially bullshit ever since they shifted focus to back Trump.
They also want to expand the military, not cut it.
Ah! The neocon infiltration….
They have just ushered in a national DEPRESSION. DEVALUING their own currency will bring about for more damages.They are blinded as to what is quickly coming.
It’s almost as if you didn’t read the article.
well, they were in hyperinflation, at least depression can have an end. decades of bad policy has led to the current situation. Milei is making a serious attempt to address it. And I wouldn’t count out dollarization yet. if he can get the currency to stabilize, that is when it can be done effectively with the private sector dollars going into the banking system.
fingers crossed he can be successful as it will demonstrate it can be achieved
…A century of bad policy. Singularly bad policy.
And the only thing devaluing does, is enabling the bad policy to continue.
The devaluation is done specifically in order to make the very institutions which are the result of bad policy, nominally more solvent again. Which is the exact opposite of addressing the problem they are symptoms of.
AND, to make matters worse: A, or possible even The, main motivation is seemingly to transfer enough Argentinian wealth from Argentinians, to enable paying the IMF! THE worst of all possible bad institutions.
What Argentina needs, is to not waste money paying “debt.” And to not have idiot creditors have a say in anything. And ditto idiot privileged dilettantes who have been propped up by the debt and debasement over the years.
IOW: It needs a STRONGER currency. Strong enough that “everything” is bankrupted and firesold. To emerge debt free, AND unable to take on much, if any, debt for a long, long time going forward.
For a century now: The ones who have had the purchaisng power to control productive assets in Argentina, has been those with preferengtial access to debt and debasement. So, predictably, the whole country has been ran by nothing but privileged dilettante idiots. With entirely predictable consequences.
To get out of that plight, Argentina needs purchasing power to, as close to completely as possible, only flow to those who directly produce tangible value. IOW: Actual Anarcho-Capitalism: That way, resource control will, on a continous basis, flow in the direction of those with proven productive acumen. Rather than to illiterate apes making promises and “doing deals” with “forreign creditors,” the Argentinian “Elite”, the IMF and printed/debased/devalued paper.