Economy
At the beginning of the 20th century, Argentina was one of the world’s ten richest countries. The country was so wealthy that “rich as an Argentine” became a common expression. But over the latter half of the century, disastrous economic policies turned one of the world’s richest countries into an economic basket case.
This culminated in a debt default in 2001 from which Argentina has yet to fully recover. And now the country that once was one of the world’s wealthiest is now better known for its debt, crime, and inflation.
Argentina just recently introduced a 2,000 peso banknote, which on unofficial exchanges is only valued at around $4. With inflation at over 100% annually, the country could be entering into another period of severe inflation.
Given Argentina’s history, it’s not surprising that many people are warning that the US could face a future similar to Argentina. But is that inevitable or avoidable?
The prospect of a US debt default is perhaps one of the reasons Argentina has been in the headlines recently. The dire warnings of what could befall stock markets, bond markets, and the housing market are worrying investors and putting pressure on Washington to come to some sort of agreement.
Hard as it may be to believe, around the same time Argentina was defaulting on its debt, policymakers in Washington were warning that the US government was in danger of not having enough debt. Yes, that’s right, the threat of paying off the national debt was a cause for concern to Alan Greenspan and others.
You might be asking yourself how paying off the national debt could be a bad thing. Well, because the Federal Reserve uses purchases and sales of Treasury debt to conduct monetary policy, the Fed needs government debt to exist in order to carry out its policies. Insufficient levels of debt held by the public could hinder the Fed’s ability to carry out monetary policy, hence the worrying from Washington.
Those fears ended up being completely overblown, however. Despite the vaunted budget surpluses of the late ‘90s and early ‘00s, those only decreased debt held by the public. Meanwhile the total national debt continued to rise.
And thanks to government policies such as the “war on terrorism” and the responses to the 2001 recession and 2008 financial crisis, the national debt has exploded since 2001 and shows no signs of shrinking. Budget surpluses are a thing of the past, and no one foresees the government ever getting back to balanced spending.
Today the national debt is more than five times larger than it was at the end of 2001, at $31.4 trillion. And at $24.6 trillion, the amount of debt held by the public is more than seven times higher than it was in 2001.
The US defaulting on its debt likely won’t be as catastrophic as it was for Argentina. For Argentina, the default was the culmination of decades of horrible fiscal policies. But the default still has not been fully resolved today, over two decades later.
A US default, on the other hand, while resulting from years of bad fiscal policy, would likely be resolved relatively quickly. Not only does the US government have greater potential for revenue, but there is also a stronger political will to avert the negative consequences of a default.
But just because the US won’t go full-blown Argentina in the event of a default in the near future doesn’t mean that the threat isn’t still there later on. No one in the 1910s or 1920s could have imagined a future in which Argentina would fall to 86th-richest in the world, barely above Iran, Lebanon, and Belarus.
No one today can imagine a world in which the US isn’t the world’s dominant economy and in which the US dollar isn’t the world’s reserve currency. But the advantages the US has had over the past several decades could easily be squandered, especially if Congress doesn’t get serious about tackling the US debt crisis.
How did ordinary Argentines cope with their debt crisis? Like many people living in countries with hyperinflated currencies, they decided to turn to gold.
Gold is seen as a store of wealth and as a safe haven asset in Argentina, just like it is elsewhere. Argentines who attempted to cope with high inflation sought the safety and security of gold. Despite restrictions placed on gold purchases and limited supply from dealers, gold remains a popular option in Argentina.
If the United States falls into a debt default similar to Argentina’s, the popularity of gold in the United States would undoubtedly increase. As it is, gold is already growing in popularity in the US, as investors flock to the yellow metal to protect their assets ahead of a potential recession.
Americans would do well to heed the example of Argentina, and to see it as a warning about what could happen here if the government doesn’t get its spending under control. And many Americans are already starting to protect themselves and their financial security by buying gold.
The options available to buy gold today are plentiful, and include things like a gold IRA, which allows you to protect your tax-advantaged retirement savings with physical gold coins or bars. For those who don’t have 401(k) or IRA assets to protect, or who want to protect other assets, There is always the option to make a cash purchase of gold coins.
While an Argentine-style default is obviously a worst case scenario for the US, even a minor default could cause interest rates to shoot up or stock markets to fall. And unless Congress gets its act in gear and gets spending under control, the risk of default will continue to threaten the country, roiling markets periodically.
If you’re worried about the direction this country is headed, and want to protect your assets against inflation, recession, or government default, maybe it’s time to start thinking about gold. Gold has helped protect wealth for hundreds of years, and will likely continue to do so for hundreds more.
Goldco has helped thousands of satisfied customers over the years benefit from owning gold, and we can help you too. Call Goldco today to learn more about how buying gold can help protect your financial future.
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