← Back to All Videos

Faltering Economy for Battered Britain and Argentina

Blog Nov 13, 2012

Sadly enough, Britain of 2012 is an image of the Faltering Economy of battered Argentina of 2002. There is a striking similarity between the economic condition of the two nations – the problems that seem to be plaguing Argentina about 10 years ago and the ones faced by Britain in 2012. In both these cases, the governing authorities believed that they could actually avert a debt crisis through their tricky moves. Way back in 2002, every move made in Argentina only made matters worse. And today, Britain finds itself committing the same mistakes over and over again.

Argentina had won accolades for its market capitalization initiatives till the savage depression engulfed it in 1998. Just like Britain, it was considered as a safe domain on account of its open markets and favorable environment for business. Quite like Britain, Argentina effortlessly attracted foreign investments. It was no surprise therefore, that one fourth of JP Morgan’s market bonds was invested in Argentina itself. However, the crash was just round the corner and the crisis had predominantly stemmed from debt. Once the credit markets stagnated, the markets disintegrated.

What followed was a sequence of misjudgments that caused the economy to shrink by another 28% resulting in an inflation of 41%, unemployment that accounted for 25% of the workforce and the depletion in real wages by 24%. Subsequently, 50% of the population fell below poverty line. At every stage, Argentina’s economic recovery was challenged by the moves made by its own politicians as per the reports published by Jim Saxton. The budget deficit was 2.5% and the gap between tax receipts and outgo had to be reduced. However, tax cuts could not be made since the majority of it was owed to a minority party.

Instead Argentina decided to raise taxes and signs of recovery became easily apparent by December 1999. The tax increase resulted in amplification of recessionary trends. The deficits also expanded in tandem, since state spending became unmanageable and tax take dwindled in a faltering economy.

In both countries, assertion of credibility overtook policy making. As far as Argentina was concerned, the government propped a termination of dollar peg because of the prevailing convertibility crisis. This frightened the markets and borrowing costs escalated. The same fate lies in store for Britain in the coming December, leading to abandonments of deficit targets and debts of Osborne.

Another interesting thing about the crisis in Argentina was that, it was entirely driven by the public sector enterprises. During the six year tenure that spanned from 1994 to 2000, the net debt escalated from $43 billion to $58 billion even as the net private sector assets grew from $22 billion to $29 billion.

In Argentina’s case, it was the government that was interfering in the Argentine Banking System that damaged the private sector, making credit impossible. And, launching monetary policies with the sole desire of satisfying the bond markets made matters worse. The interest rates in Argentina were artificially inflated in a bid to support the local currency, which led to the dollar as well as dollar/euro pegs. When it comes to Britain, the QE is represented through more direct interferences. Both these excesses are detrimental, especially in the long run because it does not allow the government to keep checking gradual advances in government debts.

Britain’s problems are also linked to the public sector. However, Britain and Argentina are two different nations and a country like Spain could perhaps be a better comparison. As technocratic interference increases, this could be the best time to bear in mind the past lessons of a faltering economy.

Thumbnail Photo We believe that everyone deserves a properly developed strategy for financial safety.

Lynette Zang

Chief Market Analyst, ITM Trading

Sources & References In This Article

Similar Posts

Blog Jan 3, 2024

The Great Taking: Understanding the Shift in Global Debt | A Deep Dive into Financial Collateral

Learn More
Blog Dec 19, 2023

Is the U.S. Dollar in Crisis? Exploring Currency Markets, Inflation, and Bank Downgrades

Learn More
Blog Dec 8, 2023

From Treasury Outflows to Inflation and Consumer Anxiety, how far will it go?

Learn More
Blog Dec 8, 2023

Your Safety Is Not Their Concern

Learn More
Blog Sep 29, 2022

What’s Driving Energy Prices Up? Will the Crisis be worse than the 1970s?

Learn More
Blog Sep 15, 2022

Underneath the Surface: Recession or DEPRESSION?

Learn More
Blog Jan 9, 2020

REAL OR FAKE GOLD, BIG VS SMALL BANK DEPOSITS… Q&A with Lynette Zang and Eric Griffin

Learn More
Blog Nov 28, 2018

ENTERING THE MINEFIELD: Is Your Armor Ready? By Lynette Zang

Learn More

Not Sure What Works for You?

Our team has over a century of combined experience in guiding our customers to the best products is for their wealth protection and preservation goals. Call us today.

888-696-4653
or schedule a call

Schedule A Strategy Session

Get Your Free Protection Guide

Stay Informed

Receive the latest updates regarding the economy.

Send this to a friend