The American Spectator

Argentina enjoyed the world’s fourth highest per capita GDP in 1929, on par with America at the time. But then the nation lost its way with a union dominated government taking control of the economy, and imposing wildly irresponsible taxes, spending, deficits and debt. After World War II, the hugely popular Juan Peron came to power in alliance with the unions, which effectively became part of the government. It has been all downhill for Argentina ever since.

The nation’s currency lost 70% of its value in 2 years, and inflation roared to 50% in 1951, amidst out of control spending, deficits and debt, which the nation’s monetary authorities accommodated through the “quantitative easing” of the time. The economy has never really recovered, as union dominated government only expanded and solidified control of the economy.

Further national debt was piled up in the 1970s for stimulus infrastructure projects and bailouts of private sector debts. The government in the early 1980s said unemployment was 5%, but private economists estimated it at 18%. Inflation rose to 10% to 20% per month. By 1989, it reached 200% per month, 5000% for the year. This effectively expropriated the savings of everyone in the country, from the rich to the middle class, as whatever anyone had managed to save was reduced to worthlessness. The inflation also cut real wages for working people almost in half. This is what happens when the voting public proves incapable of self-government.

By 2001-2002 demonstrations turned violent, with noisy crowds breaking the windows of major businesses and setting fires at their doors. Many companies began erecting large metal barriers to deny access to the crowds.

Today, Argentina ranks 53rd in the world in per capita GDP according to the International Monetary Fund, 57th in the CIA World Factbook, at a level less than one third that of America. But its national debt at 51% of GDP is actually less than that of the United States under the Obama Administration at 61% of GDP and rocketing skyward. Peron’s party, the Justicialist Party (PJ), remains a central factor in Argentina’s Kirchner government to this day.

Barack Peron?

Is America now headed down this same road? Already, President Obama’s own 2012 budget documents show that more national debt will be added in one term under Obama than under all previous U.S. Presidents combined, from George Washington to George Bush. That national debt is already on track to soar past the all-time record as a percent of GDP set at the end of World War II, and past the level that triggered bankruptcy for Greece.

Those budget documents also show that this year the federal deficit will be $1.645 trillion, the highest in world history, without comparison. The federal deficit last month alone, at $222.5 billion, was higher than the deficit for the entire year in 2007, at $161 billion, which was the last fiscal year for which the federal budget was adopted by a Republican-controlled Congress.

The Fed’s policy of accommodating this fiscal profligacy with its “quantitative easing” is precisely a recipe for surging inflation. About 70% of federal debt issued to cover the deficit is bought by the Fed today with printed money, which is the only reason interest rates remain low. The minute the Fed stops that to avoid surging inflation, interest rates will soar, turning the economy back down.

And already we see the early warning signs of inflation. First the dollar started to fall. Then the price of gold started to rise, to all-time record levels today. Then other commodity prices started to soar, including oil to over $100 a barrel, which itself threatens economic downturn as an effective huge tax increase on the economy. Now we begin to see inflation showing up in producer prices.

With President Obama running for reelection next year, the Fed is unlikely to reverse course and allow interest rates to rise with all of the resulting contractionary effects. With the double whammy of the expiration of the Bush tax cuts and the new Obamacare taxes both now scheduled to take effect in 2013, the Fed is likely to want to avoid any reinforcing contractionary effects then or any time soon thereafter. That means it may effectively be trapped into allowing inflation to roar higher and higher through 2014, or else cause a horrific recession in 2013, if not 2012, that will cause further exploding deficits and national debt, which the U.S. cannot afford. See, e.g. Greece.

The only way to avoid that is to sharply cut rather than sharply raise tax rates, allowing the Fed to reverse course to avoid inflation without causing economic mayhem. And the only way to achieve that, it seems, is to not reelect Barack Obama.

Obama’s Political Machine and Government Unions

But already we see government employee unions, central players in the Obama political machine as in the Peron political machine, in the streets in Wisconsin and elsewhere causing their own mayhem. And we see the Democrat party in Wisconsin and elsewhere repudiating the 2010 election results and refusing to abide by them. That is the only way to interpret the 14 remaining Democrat Wisconsin state senators effectively shutting down the state legislature for 3 weeks by fleeing the state. The voters switched dominant control of the state legislature in Wisconsin from Democrat to Republican, and the Democrats responded by shutting down the legislature by refusing to serve until the Republicans agreed to Democrat policies on government union collective bargaining. Congratulations to Governor Scott Walker and the Republicans for having the courage to short-circuit the Democrats attempted coup d’état.

Democrats did the same thing in Indiana for a while, drawing the line at consideration of a right to work law for the state, which again involves refusing to follow the results of the 2010 elections unless Republicans agree to follow the Democrat policies on right to work. The Democrats and their government union allies are still threatening the same elsewhere.