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FerFAL: Here's What It Looks Like When Your Country's Economy Collapses

Argentina is showing us the playbook in real-time
Saturday, February 8, 2014, 3:36 PM

Argentina is a country re-entering crisis territory it knows too well. The country has defaulted on its sovereign debt three times in the past 32 years and looks poised to do so again soon.

Its currency, the peso, devalued by more than 20% in January alone. Inflation is currently running at 25%. Argentina's budget deficit is exploding, and, based on credit default swap rates, the market is placing an 85% chance of a sovereign default within the next five years.

Want to know what it's like living through a currency collapse? Argentina is providing us with a real-time window.

So, we've invited Fernando "FerFAL" Aguirre back onto the program to provide commentary on the events on the ground there. What is life like right now for the average Argentinian?

Aguirre began blogging during the hyperinflationary destruction of Argentina’s economy in 2001 and has since dedicated his professional career to educating the public about his experiences and observations of its lingering aftermath. He is the author of Surviving the Economic Collapse and sees many parallels between the path that led to Argentina's decline and the similar one most countries in the West, including the U.S., are currently on. Our 2011 interview with him "A Case Study in How An Economy Collapses" remains one of Peak Prosperity's most well-regarded.

Chris Martenson:  Okay. Bring us up to date. What is happening in Argentina right now with respect to its currency, the peso?

Fernando Aguirre:  Well, actually pretty recently, January 22, the peso lost 15% of its value. It has devalued quite a bit. It ended up losing 20% of its value that week, and it has been pretty crazy since then. Inflation has been rampant in some sectors, going up to 100% in food, grocery stores 20%, 30% in some cases. So it has been pretty complicated. Lots of stores don't want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.

Chris Martenson:  So 100%, 20% inflation; are those yearly numbers?

Fernando Aguirre:  Those are our numbers in a matter of days. In just one day, for example, cement in Balcarce, one of the towns in Southern Argentina, went up 100% overnight, doubling in price. Grocery stores in Córdoba, even in Buenos Aires, people are talking about increase of prices of 20, 30% just these days. I actually have family in Argentina that are telling me that they go to a hardware store and they aren't even able to buy stuff from there because stores want to hold on and see how prices unfold in the following days.

Chris Martenson:  Right. So this is one of those great mysteries of inflation. It is obviously 'flying money', so everyone is trying to get rid of their money. You would think that would actually increase commerce. But if you are on the other end of that transaction, if you happen to be the business owner, you have every incentive to withhold items for as long as possible. So one of the great ironies, I guess, is that even though money is flying around like crazy, goods start to disappear from the shelves. Is that what you are seeing?

Fernando Aguirre:  Absolutely. Shelves halfway empty. The government is always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don't increase prices, companies just are not willing to sell. It is a pretty tricky situation to be in.

Chris Martenson:  Are there any sort of price controls going on right now? Has anything been mandated?

Fernando Aguirre:  As you know, price controls don't really work. I mean, they tried this before in Argentina. Actually, last year one of the big news stories was that the government was freezing prices on food and certain appliances. It didn't work. Just a few days later those supposedly "frozen" prices were going up. As soon as they officially released them, they would just double in price.

Chris Martenson:  Let me ask you this, then: How many people in Argentina actually still have money in Argentine banks in dollars? One of the features in 2001 was that people had money in dollars, in the banks. There was a banking holiday; a couple of weeks later, banks open up; Surprise, you have the same number in your account, only it's pesos, not dollars. It was an effective theft, if I could use that term. Is anybody keeping money in the banks at this point, or how is that working?

Fernando Aguirre:  Well, first of all, I would like to clarify for people listening: Those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean banks – they are the same banks. If they are willing to steal from people in one place, don't be surprised if they are willing to do it in other places as well.

Click the play button below to listen to Chris' interview with Fernando Aguirre (36m:42s):

Transcript: 

Chris Martenson:  Welcome to this Peak Prosperity podcast. I'm your host, Chris Martenson. Well, the emerging market crisis of early 2014 is raging along, and several countries are becoming increasingly chaotic and desperate. One of those is Argentina. Of course, Argentineans are experiencing this sort of thing, having just sort of gone through it all back in 2001. So I'm wondering how things are unfolding and what sorts of lessons learned are being applied by those living there.

Today we are fortunate to be speaking with Fernando Aguirre, also known as FerFAL, author of Surviving the Economic Collapse, the book. FerFAL experienced the hyperinflationary destruction of Argentina's economy personally in 2001 and has since dedicated his professional career to educating the public about his experiences and observations of its lingering aftermath. Of course, it looks like we are having a renewed version of it today. His blog, Surviving in Argentina, found at ferfal.blogspot.com, is covering the events as they unfold, as well as well more other general topics around the idea of navigating an economic dislocation wherever you happen to live.

Given rising concerns about the possibility of an unfortunate conclusion to central-bank meddling, our listeners are increasingly asking to hear from voices that have firsthand experience with what it is like to live through a large, shall we say, adjustment process.

FerFAL, so glad you could join us.

Fernando Aguirre:  Chris, it is great to be talking with you again.

Chris Martenson:  Okay. Bring us up to date. What is happening in Argentina right now with respect to its currency, the peso?

Fernando Aguirre:  Well, actually pretty recently, January 22, the peso lost 15% of its value. It has devalued quite a bit. It ended up losing 20% of its value that week, and it has been pretty crazy since then. Inflation has been rampant in some sectors, going up to 100% in food, grocery stores 20%, 30% in some cases. So it has been pretty complicated. Lots of stores don't want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.

Chris Martenson:  So 100%, 20% inflation; are those yearly numbers?

Fernando Aguirre:  Those are our numbers in a matter of days. In just one day, for example, cement in  , one of the towns in Southern Argentina, went up 100% overnight, doubling in price. Grocery stores in Córdoba, even in Buenos Aires, people are talking about increase of prices of 20, 30% just these days. I actually have family in Argentina that are telling me that they go to a hardware store and they aren't even able to buy stuff from there because stores want to hold on and see how prices unfold in the following days.

Chris Martenson:  Right. So this is one of those great mysteries of inflation. It is obviously flying money, right? So everyone is trying to get rid of their money. You would think that would actually increase commerce. But if you are on the other end of that transaction, if you happen to be the business owner, you have every incentive to withhold items as long as possible. So one of the great ironies, I guess, is that even though money is flying around like crazy, goods start to disappear from the shelves. Is that what you are seeing?

Fernando Aguirre:  Absolutely. Shelves halfway empty. The government always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don't increase in prices, companies just are not willing to sell. It is a pretty tricky situation to be in.

Chris Martenson:  Is there any sort of price controls going on right now? Has anything been mandated?

Fernando Aguirre:  As you know, price controls don't really work. I mean, they tried this before in Argentina. Actually, last year one of the big news was that the government was freezing prices on food and certain appliances. It didn't work. Just a few days later those supposedly frozen prices were going up. As soon as they officially released them they would just double in price.

Chris Martenson:  Let me ask you this, then: How many people in Argentina actually still have money in Argentine banks in dollars? One of the features in 2001 was that people had money in dollars, in the banks. There was a banking holiday; a couple of weeks later, banks open up; Surprise, you have the same number in your account, only it's pesos, not dollars. It was an effective theft, if I could use that term. Is anybody keeping money in the banks at this point, or how is that working?

Fernando Aguirre:  Well, first of all, I would like to clarify for people listening, those banks that did that are the same banks that are found all over the world. They are not like strange South American, Argentinean – they are the same banks. If they are willing to steal from people in one place, don't be surprised if they are willing to do it in other places as well.

Chris Martenson:  No surprise here.

Fernando Aguirre:  Exactly. Don't be surprised if it happens to you as well. To answer your question, people really don't trust banks much, and especially since there was an official ban of some sort for the average people to buy foreign currency, so they just go to the black market. And the average Argentine person has his money under the couch. They buy dollars at the black market at a much higher price. The peso is officially eight pesos per dollar; unofficially, it is almost 13 pesos per dollar. There is quite a difference there. Still, people choose to get away from the official currency.

Chris Martenson:  Now, I understand the Argentine government has limited the number of dollars you can officially purchase to what – $2,000 a month? Something like that?

Fernando Aguirre:  It's not even that. Eighty percent of Argentines are simply not allowed to buy dollars. You have to present your income, and then the authorities decide based on your salary what you are allowed to buy. It is generally going to be $50, $100, $200 a month, if that. In many cases, even doctors, people with very good wages, they are not even allowed to buy dollars whatsoever.

Chris Martenson:  But that would be at the official exchange rate of around eight [pesos per dollar]?

Fernando Aguirre:  Exactly. What most people do then is go to what they call cuevas, like caves, which is places where from the black market you buy dollars at a much higher price, of course.

Chris Martenson:  Now, what happens if you want to,say, duck over the bay and go to Uruguay? Can you buy dollars there?

Fernando Aguirre:  That is something that has been happening quite a bit. People have been going over to Uruguay and taking advantage of that. Of course, Uruguay has had to implement some of their own restrictions, and they weren't very happy with people going over there. What they started doing is Argentina started placing checkpoints in some of the well-known spots where you deport, where you get a boat to cross over to Uruguay, so they started controlling who was traveling, what they were doing. Pretty much a blatant invasion of privacy.

Chris Martenson:  Not surprised. So let's imagine that people in Argentina have managed to squirrel away as much as they can in the mattress in the form of harder currencies, but still all of this is unfolding. We talked about some of the economic impacts, that there are things disappearing from shelves. What else is happening economically, and how are people coping?

Fernando Aguirre:  Imagine you have your wages, your salaries are still in pesos. And this basically melts your purchasing power right in front of you. People are trying to stock up on certain food products; they know that what they buy today is going to be costing maybe 2, 3 times as much just a few weeks, even a few months from now. So they are dealing with a problem of empty shelves, as we said before. There is also limits to how much you can buy – sugar, vegetable oil – there are limits, and it is usually going to be one or two units per family.

Chris Martenson:  With the idea being that obviously you’d want to purchase early and often when you are in inflationary times, right?

Fernando Aguirre:  Exactly. Absolutely.

Chris Martenson:  So if the store shelves are bare, what is the impact on jobs going to be, going down the road?

Fernando Aguirre:  There is no way of being certain of anything in Argentina, especially with this scenario. There are people that honestly do go hungry, but for the average guy that does have a job right now, he is going to be getting by. Maybe he is going to have to be eating something else; maybe he is going to have to eat more rice than meat and such. At the same time, having lived in Argentina for so long, you get used to living week by week, month by month. That is as far as you can plan. There is already no credit. There is already no credit cards to make 12-month payments or 6-month payments. Things get just a little bit tougher.

Chris Martenson:  Now the government of Argentina at this point in time, are they committing the same mistakes that led to the 2001 crisis? You know, there was this recovery period, a little debt default, everything seemed to be going well again; of course, as we now know, much of that was due to the fact that the whole world was being reflated with dollars everywhere, and yen and euros and other things. So the developed world was flooding the world with dollars. The so-called “undeveloped” parts of the world were benefitting from all of that. Now that the tide has turned, governmentally are you seeing the same mistakes made, which was, Wow, times are good; let's just pretend that everything is right and good. Or had real structural reforms been made?

Fernando Aguirre:  No, that is one of the things that worries people the most. There is really no plan for anything. The idea is just to deny what is happening. It is like going to the doctor; you are sick and you are not telling him what is happening to you; there is no way of solving that.

This is a government that has always had communist, very left-leaning idea, even though at the same time these are people that have gotten themselves incredibly wealthy beyond our imagination, thanks to their policies. There is no plan whatsoever. Right now, for example, the president has seized all sorts of communication. She is just not making public appearances of any kind. The Minister of Economy, he has these Keynesian ideas of economy that really don't work. More restrictions. More freezing of prices that just doesn't get the job done.

Chris Martenson:  In your book you mentioned that actual survival skills that some people think of – boiling water in bamboo contraptions and whatnot – that those are relatively low on the coping totem pole, and that things like physical fitness, haggling, extreme budgeting, those are more important early on. How does that advice map into what is happening in Argentina right now?

Fernando Aguirre:  Well, it is something that people are – I think they never got rid of those skills. They needed them to survive ever since. In times like these, it is especially important to know how to handle your own personal finances. Know how to budget. Buy as cheap as you can. Have a good grasp on your home economy. Also finding ways of creating more income. Maybe starting your own side business. Anyone can have a profession, even a hobby, that can be capitalized in some way. That is something that we did in 2001; that is something that people are doing right now as well.

Chris Martenson:  How about alternative economies? If your currency system breaks down, you find other ways of conducting transaction, barter being the lowest form of that. What sorts of things are arising or would you expect to arise as the currency system falls apart?

Fernando Aguirre:  Well, the barter economy is something that we did experience in 2001 when the economy fully collapsed, and banks just closed, and there was really just no way of getting by. At the same time, you had huge amounts of unemployment. So people just traded whatever it is that they had, or skills they had, for what they needed. Eventually we realized that you still need some form of currency.

I think that there is not going to be a huge increase in barter economy. Not even very significant. But we are going to be seeing quite a bit of loss of standards of living as people just focus more on surviving than anything else. These measures taken by the government, the inflation especially targeting those that still have something to be taken away from them, which is what is left of the Argentine middle class, it is going to be more people becoming poor as time goes by.

Chris Martenson:  That dynamic could create some social tensions, as it turns out that certain individuals are fantastically wealthy by the same process. It is really a point I want to sort of dig at here. We saw this in Weimar, Germany in 1923 to 1928. It is talked about as this extraordinary wealth destruction that devastated the middle class. But if you twist it slightly, it wasn't a destruction; it was a transfer. The land didn't go away. The houses didn't go away. The productive assets are still there, maybe underutilized, but fundamentally, who owned them shifted enormously. So I understand there is this very popular way for historians – who knows who is funding them – to look back in time and say, Oh, it was wealth destruction. Like a meteor hit. It just went away. It doesn't go away, right? It goes from point A to point B. Is there a sense that people understand that process and that that could create tension?

Fernando Aguirre:  I don't think that most people understand what you are saying in terms of wealth not disappearing. As you say, there is still the buildings, there is still the infrastructure. There is still the work, the labor that people do. If you work your behind off all day long, there is something there. Now the problem is that you are not being compensated for your effort. But that wealth you are creating is going somewhere. And usually, as you say, it is being focused in a very small number of people that are taking advantage of that.

A good example of that would be, in Argentina, the only thing really worth something on a large scale was the production of soy agriculture. The government slashed that with 80% tax, leaving basically nothing to the producers. They got away with that for quite a bit of time. Now that the price of that particular commodity is going down, they really have nowhere else to take money from.

Chris Martenson:  It is the process. It happens over and over and over again. And so in this new Internet Age and with social media and whatnot, I think it is possible for people to come across information that would explain what is happening more readily than in times past. But it is kind of the oldest game in the book. Certain people and institutions create a whole lot of claims against an underlying economy. Eventually, there are too many claims. And instead of the people who made too many of those claims having to eat the losses for having made some very bad loans and other decisions, it inevitably falls on having the wealth be transferred and extracted from the remaining productive portions of the society. That can only go on so long, if I may use this metaphor, until the parasite takes too much blood from the host. And then there is some other sort of an adjustment process. Do you see that in the future?

Fernando Aguirre:  I don't see it in the future; I see it in the past. It happened in December last year. Less than two months ago, there was widespread rioting across the entire country in Argentina. The police department in one province went on strike because that governor was not aligned with the president. They punished him by not helping him out. Now, as other police forces saw that the strike went on, they started going on strike themselves. The entire country's police force went on strike. Ended up in rioting. Over a week of anarchy across the entire country with at least 13 dead. Widespread looting. Thousands of stores looted across the country. That's the kind of scenario we are looking at.

Chris Martenson:  Obviously, that is a very turbulent period to be in. What were most people doing during that? I assume the rioters were a subset. Was everybody else just holed up in their house?

Fernando Aguirre:  People were holding on in their houses. Some neighbors were organizing to defend their communities. Many looters got killed. There are stories we still haven't heard of. A lot of that we may never hear of. I know for a fact there is plenty of footage on that on YouTube, thousands of hours of video on that. It was really widespread, and people just fending for themselves because there was no government controlling anything for at least a week.

Chris Martenson:  And who was out doing the looting? Was this your typical 18-to-25-year-old male cohort, or was this more widespread?

Fernando Aguirre:  It's interesting, because of course some of the people, you already have a good idea who may end up doing that. You know, some of the known elements that we always see when there is rioting and looting, taking advantage of that. But then there were people with fancy 4x4 trucks just parking it in a large store and loading it up with appliances, washing machines, TVs. There was quite a bit of madness during those times.

Chris Martenson:  Interesting. And this was widespread. This wasn't just in the one metropolitan area.

Fernando Aguirre:  It was widespread. Buenos Aires, Córdoba mostly. Especially in the provinces across the country it was pretty bad, yes.

Chris Martenson:  And that settled out a little bit for now, but how do you see this playing out throughout the rest of this year?

Fernando Aguirre:  Economists are talking about at least 30% inflation. Some of the ones that are more positive say it is not going to be getting worse than 40%. That may be true for some people; for the middle class, it is going to be worse than that for sure. I think if things get desperate enough, if people start getting hungry on a large scale, I don't think they are going to be seeing the end of this year. They are going to be seeing the government – the president is going to have to resign or call for early elections or some other measure.

Chris Martenson:  I heard that Argentina is limiting if not banning imports at this point in time to prevent the hemorrhaging of what remaining foreign currency reserves; that is, dollars that they have – there is a burn rate on those reserves right now. And when they go to zero, you are in big, big trouble, especially if you have any debt that is denominated in that currency. So given that, it is going to be very difficult for people in Argentina to get their hands on imported goods – good luck if you have a repair that requires a part coming from somewhere, things like that. What is Argentina's main exports? Where is it getting its hard currency from?

Fernando Aguirre:  Well, soy production was called the “green oil,” the “green gold,” some of the phrases used. That was the main thing they were exporting. And they still do, but they have already taxed that so much, and the price is not going up anymore. And they already looted the personal savings of people; the retirement funds, they nationalized those. There is really no one else to take away money from. As you were saying, this isn't anything new; it has been going on for at least a year that imports are basically stopped, and even for the average person buying stuff online, it is not going through customs anymore. It is getting stopped. You are only allowed to buy two items and it can't be more than $25; I mean, it's a pretty bad scenario to be in.

Chris Martenson:  What I am wondering is around the advice you would give, knowing that you can see these things coming. My personal advice is you want to prepare early and often, but that is when things are still working well. I think that when you are in the throes of the crisis, like Argentina is right now, that moment of going out and trying to stockpile and accumulate, I actually think that is not a responsible thing to do. You can't have everybody trying to hoard at the same time, because then that is really unfair and a lot of people get left out. So I think there is a strong case to be made for preparing early and often. But once you are in the middle of it, that is no time to try and figure out how you are going to try to take care of these things.

How many people do you think had done the prepare early and often model? How many Argentineans saw this coming?

Fernando Aguirre:  I think everyone saw this coming. There is really no way to expect anything else with the measures that we are taking. Argentines are pretty much used to this sort of thing. They just roll with it. What they don't have, they just do without. They have family helping each other. It is the way a lot of people have been living for most of their adult life, if you think about it that way. I think that, as you say, it is a good idea to be prepared in advance for this sort of thing. The supplies that we all know you should have – food, water, of course – at home in case there are problems. But when something like this happens in a country, it is so bad, it is not a short- or medium-term period to go by. I think the best thing, and what I did myself, is just get out of there as soon as you can.

Chris Martenson:  Let's talk about that. How many people do you think in Argentina have left, and who do they tend to be?

Fernando Aguirre:  Well, this started back in 2001, and at least 300,000 ended up in Spain. Some numbers vary, but easily over a million people have left the country in all these years. The thing is that those that could leave, most of them ended up leaving close to the big economic collapse in 2001. Last year a lot of people were also leaving. They usually end up in Spain, in Italy, those that have European citizenship. It is generally going to be younger people, especially because many countries are more welcoming of younger workers than older ones.

Chris Martenson:  Unfortunately, for the people who went to Spain, they jumped out of the fire and right back into a frying pan.

Fernando Aguirre:  Yes, exactly.

Chris Martenson:  They have got to be feeling blighted at this point, particularly with youth unemployment there at 50% or greater. I want to ask about that, then, because here is the question: What is really different in your mind then between Argentina and the so-called “developed” nations, maybe Europe? Structurally, what is really different?

Fernando Aguirre:  The differences – yes, they are significant. As you said, people left Argentina, ended up in Spain and they saw this huge crisis ongoing still. But at the same time, it is not a developing nation. It is not a third-world country. There are quite a bit of differences. You can expect certain things from the political system in Spain. You cannot expect basically anything from the Argentine politicians. They themselves steal companies, like they did with Yacimientos Petrolíferos Fiscales (YPF), the Spanish petrol company. There is really no legal frame to go by.

At the same time, in Spain, you at least know the legal system works. There are certain safety nets that people can somewhat count on. There is really none of that in Argentina. It is pretty much everyone taking care of themselves and the government just not being there whatsoever. I know a lot of people that ended up in Spain, and as part of that country, they know for a fact that they are just much better off than living in Argentina.

One of the big things is of course, crime, which is out of control in Argentina. Especially because the policy is to – same with the economy – just deny it. So it keeps getting worse. Spain, you at least know you are somewhat safe on the street.

Chris Martenson:  That is a huge difference, of course, particularly when we are talking about quality of life. As you look wider across the globe, it is always good if there is a border to duck across. From my analysis, the world, particularly the developed nations, have been on a credit binge that is at least four decades in the making. Maybe it will go another decade or two; I don't know. Maybe it goes another two weeks; I don't know. Structurally, I see that there are too many claims against too few actual resources. And the same dynamic of somehow the already-well-connected are vacuuming up ever larger amounts. To me, that is just a feature of a debt-based money system. This is how they operate. Obviously, in Argentina, when you throw in corruption on top of that, it just exacerbates the problem.

But if you were going to be giving advice to people who are living in countries that seem stable, that seem reasonable – they are in Spain, they are in Ireland, they are in France, they are in America, they are somewhere – do you think that there is a parallel here that they should be aware of, in terms of how Argentina is operating, or is it just too fundamentally different how Argentina is going to unfold versus anybody else?

Fernando Aguirre:  I think that Argentina is a good example of a worst-case scenario. I don't see the dollar losing 20% of its value overnight. The dollar is not the peso. As bad as it may be, it is still not the Argentine peso. I think that Argentina it is a good case study to see how things get really bad. And even if they don't get nearly as bad as they did in Argentina, many developed nations, as you were saying, U.S., places in Europe and such, they are seeing a little bit more of it. It is just a little taste of what Argentina is like. And life will be changing toward that direction a little bit. It is not going to be getting that bad. I don't think it is going to be getting completely destroyed, as it happened with the Argentine economy, but people are going to be seeing more inequality. There is going to be more poor people. There is going to be more competition for each job. And you will have to be a little bit more creative so as to sustain your quality of life. And there are going to be a lot of people who just have to adapt to living in lower standards of living than they may have been used to themselves not long ago.

Chris Martenson:  We mentioned some of those coping things – physical fitness, haggling, extreme budgeting. What else is on your list of important skills to have?

Fernando Aguirre:  I think it is a good point to insist on how important it is to be marketable in a job market that is going to be more and more competitive as time goes by. Anything that you can add towards that. Any additional trait or bonus that you can offer your employer. Or being good at creating your income, starting your own business, even if it is a small scale, doesn't matter as long as you have something to work with. Managing your finances. Trying to stay healthy and fit, because of all of these things, people think that you are going to [need to] be physical fit for some outrageous survival scenario; it is really a matter of being well prepared for being more stressed and dealing with more tension than you are used to.

Chris Martenson:  Right. Of course, being physically fit is essential to that.

Here is one of the main things that we are really about at Peak Prosperity is this idea that the goal of life is to be happy and fulfilled. It is still possible, we believe, to have a much, much lower standard of living and a higher quality of life, to still really enjoy life and live it fully, even though you have less material stuff. This is one of the main points we try to make, that if you are coasting along and all of a sudden your stuff is taken away from you, that is a really traumatic event, very stressful, and it hurts like crazy. But if you, yourself, made that same adjustment to the same lower amount of stuff, it can be completely joyous, fine; a completely reasonable process. It is really a difference of doing it on your own terms rather than having it forced on you by some other terms. I don't care what country you live in; that seems like a reasonable way to live.

Fernando Aguirre:  I think it's a great point. I think especially Americans are maybe a little bit too used to finding pleasure in materialistic stuff. This sounds like kind of, Oh, you are all going communist or something like that. No, it's not that. It is just understanding really how important is the material part of your life. It has a place, for sure, but is it the most important aspect of your life? Is that what defines you as a person? Or is it your family? Is it the quality of time that you have in this life?

Chris Martenson:  Exactly. Sometimes the opportunity in a crisis is we get to re-examine those things and become more conscious of them. So that is, I think, always the silver lining in the story. And yet, it is very clear that Argentina is a fuse that has been lit. It is going to burn or smolder for a while. Thirty percent inflation is no fun. Sixty percent is even less fun. Who knows what the number will actually be. Ultimately, there will be some process where this will have to burn itself out, and then the rebuilding can start.

The thing that worries me about the developed world is that there has not been a forest fire in our financial ecosystem for many decades now. All of them have been squashed by the well-meaning firefighters in the various central banks. But of course, the tinder is just built, and we always worry that the next forest fire will be just a little bit more destructive than it should have been. And so, to that point, what I try to advise people to do is just to be aware that these things can happen, they do happen. They are lessons learned and people can go to your blog at ferfal.blogspot.com to read more about what is actually happening in Argentina.

There are really instructive lessons in there because it's happening. Of course, the culture dictates part of the outcome. I'm sure you would have a very different outcome in Japan, because of demographics, because of the culture, because of all kinds of reasons. Understanding how people behave when their money systems fall apart is pretty much universal, at least to some extent. I think there are a lot of really important things there for people to read about.

And for you, FerFAL, are you working on another book? What are you working on now?

Fernando Aguirre:  Yes. I'm actually wrapping up a book on bugging out and relocating, which is what I did when I left. I think it is going to be a good book for people – some of them have been asking for something like that. As you were talking about before, it is quite enlightening to leave everything that you ever owned. We left, ourselves, with just two pieces of luggage each. Just two suitcases each. I remember being the car and seeing, Okay, this is all we have. These are all of our material possessions. And at the same time, a few weeks later when we were settling over here, I was talking about it with my wife, and we said, We don't need anything else. We have everything that we need. And with money, we buy the furniture that we need, whatever, the clothing; everything else can be replaced. What you cannot replace is yourself; who you are, and your family.

Chris Martenson:  Interesting. This book about moving to a new location, would that apply equally well – are there lessons that might work within a country? If I lived in Oakland and didn't like that –

Fernando Aguirre:  Absolutely, yes. I am not only discussing some of the countries I was looking at; I am mostly talking about the mental process and the way of analyzing each choice. That is why it is called Bugging Out and Relocating. You can choose to relocate or not, and you may be lucky enough to never have to do that. Now, bugging out is something that can affect every single person. You just don't know it. If your house burns down, if there is a natural disaster of some sort, and you have to just grab a small bag and leave and lose everything – happens all the time to people for various reasons.

Chris Martenson:  Well it happened to 100,000 people around Fukushima, and that is a permanent sort of event as far as their lives are concerned. Well, that is very interesting. We will look forward to that when it comes out. When do you think that is coming out?

Fernando Aguirre:  Maybe for next month. I will send you a copy as soon as I have one.

Chris Martenson:  Great. We will get it up on the site and let people know about it. I am sure there are people who will be interested in that. There are two main topics that people seem very interested in. One is where should I live, which is germane to your book title and topic. And the second is, the sense of feeling like they are living two lives. They are stuck in a job, a path a set of circumstances that is not quite fully their authentic expression. It is not quite what they would be choosing if they had a blank sheet of paper, so they have a sense of wanting to be in some more fulfilling life. So there is that sense of somehow being trapped in the system, whatever that happens to be. So those are the two big things, where should I live and how should I live I guess are those two big parts. I think those are perfectly reasonable, prudent, normal, healthy things to be asking. Particularly, when you start seeing the trouble at the edges of the system, it is a very good thing to ask early and ask often.

Fernando Aguirre:  I think it is good to be helping people make those decisions, and understanding that sometimes the grass looks greener on the other side of the hill. Sometimes you really do have to make a choice, and it is not nice to regret not making a move if you chose to do so, but also, there is going to be a lot of people after reading this book who are going to be appreciating where they live and what they have.

Chris Martenson:  How about you? Do you regret moving?

Fernando Aguirre:  No. Not one bit. Not at all. I couldn't be happier. Especially seeing all of this going on. It is the best thing we could have done, no doubt about it.

Chris Martenson:  Congratulations on the foresight. I hope your book has similar insights that can help people make their own decisions.

FerFAL, thank you so much for your time today.

Fernando Aguirre:  Thanks, Chris. It is, as always, great talking with you, and we have to do it again.

Chris Martenson:  Absolutely.

Related content

22 Comments

climber99's picture
climber99
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A few questions

I'm a little confused. Inflation is technically defined as an increase in money supply and/or velocity relative to goods and services available. How is inflation in Argentina being driven?

Prices of food, stuff and energy is going up. Presumably wages are not keeping pace because the high unemployment is keeping a lid on them. This, together with a dry up in credit, is a deflationary force. How do inflationary and deflationary pressures work themselves out in the near term ?

Thirdly, people still in a job, who somehow manage to see their wages increase and see their debts being inflated away are the winners, are they not.

Ed

Arthur Robey's picture
Arthur Robey
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Geetings from Zimbabwe to Argentina. (From Z to A)

No schadenfreude.

Lessons from history. Seeing that we have broken into German let us stick with the theme. Hitler decided that the Jews were the beneficiaries of the transfer of wealth in the Weimar. That did not end well well. (No rants -Just the facts please madam.)

Ferfal advises getting away from the situation. This was burned into African my soul. Hence the Yacht. As the spot-fires break out around the planet we move from place to place finding less disadvantageous situations.

This is the way of Abel. We cannot expect the children of Cain to understand, nor to approve.

climber99's picture
climber99
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Just been thinking about what

Just been thinking about what I posted overnight. You talked about inflation being this or that. Inflation is an increase in money suppy and/or velocity of money but you didn't mean that. You meant to say that prices were going up by this or that. The increase prices are not been driven by inflation but by currency devaluation. Surely the price of locally produced goods stay the same? You just can't afford foreign imports.

cmartenson's picture
cmartenson
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Inflation Is Part Math, Part Psychology

climber99 wrote:
Just been thinking about what I posted overnight. You talked about inflation being this or that. Inflation is an increase in money suppy and/or velocity of money but you didn't mean that. You meant to say that prices were going up by this or that. The increase prices are not been driven by inflation but by currency devaluation. Surely the price of locally produced goods stay the same? You just can't afford foreign imports.

Prices of all manner of things, imported and domestic, are rising sharply in Argentina right now.  Inflation is projected to run at 40% in 2014.  But that's an official projection; others project it much higher.

There are lots of things that can cause prices to rise, so rising prices alone tell you very little about the dynamic at play.

For example, if oil now costs $100 to get out of the ground and to market, and that cost spike feeds through into all of the uncountable downstream products and processes, then we'll see prices rising all over the place for reasons that have nothing to do with monetary policy or velocity.  Both could be perfectly managed and contained, and yet prices will rise.

The next dynamic relates to monetary policy.  If too much currency is issued, then you tend to get rising prices, but where that currency goes is a subject to human whim.  Will those humans herd into real estate and cause housing prices to spike, or will they all crush into tech stocks?  Or will it be tomatoes?  At first, it is usually one place or another, or even a set of places, but it tends to be spotty.

Similarly, if the currency is only devalued internationally, then import prices will rise, and that, like the oil example above, will feed into every downstream process and good that links back to an imported product.  This is Japan's current condition.

The wild card in all this is what happens when you cross the important social/psychological barrier where there is a loss of faith in the currency and the leaders in charge of said currency.  That's when velocity and inflation tend to spike, and that's exactly where Argentina is today.

Import prices spike.  Domestic prices spike.  Nobody wants to hold local currency.  The government responds by dictating prices for goods so shelves get stripped bare.  Ownership of hard currencies is forbidden or tightly regulated, and so they spike on the black market relative to the 'official' price.

All of this describes where Argentina is.  Its issues are no longer easily remedied because they involve math, psychology, broken trust, a dysfunctional political system, and heaps of prior bad decisions.

Snydeman's picture
Snydeman
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cmartenson wrote: ...they

cmartenson wrote:

...they involve math, psychology, broken trust, a dysfunctional political system, and heaps of prior bad decisions.

Hmm. Sounds familiar.

climber99's picture
climber99
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Thanks

Thanks Chris. Yep, faith in the currency and its governance is all important and once lost it is very hard to regain. Ultimately a country must live within its means in terms of domestic energy production and natural resources. A currency should be pegged to this somehow and should be independent of political, corporate or bank manipulation to keep its integrity.

Arthur Robey's picture
Arthur Robey
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Thinking about the German Experience.

Did you notice that the Germans have a phobia about debt? Reference. They call it schuld or guilt. And they pay cash for everything. Credit cards are shunned. They save money so that their banks have a healthy reserve to lend to business ventures.

Their economy is sustained by medium sized business.

When at work they focus on the job.

Trades are highly regarded. (I have heard an anecdote about an accountant who became a teacher because the pay was better.)

They do not work excessive hours and get 6 weeks annual leave. Loyalty is exchanged between employer and employee.

There is no agonizing about the gender roles. Motherhood is considered vital to the economy and is supported by giving the man an adequate salary so that he can support his family.

They are not obsessed by Real Estate and rents are low. (No-one is going to get "Rich, Rich beyond their wildest dreams" by flipping houses and screwing young families.)

They are community focused with clubs and sports. (Singing clubs are popular. The family that sings together, stays together.)

And here is the controversial bit- they have a clear idea about who they are and who they are not, who is family and who is not.

They share this characteristic with the Japanese, another economic powerhouse. The Japanese have run into a demographic problem, and may have to abandon their exclusivity, in which case they will no longer be Japanese- and their economy will take on aspects of their neighbours.

Traditions are not arbitrary colour, they are the collected wisdom of experience. Japan has been forced to abandon their traditions and until they develop new ones, they will crash and burn. I draw a clear line between the loss of their traditions and their lack of fertility.

Oliveoilguy's picture
Oliveoilguy
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La Estancia de Cafayate

Any one have a contact with the community in Argentina? I think it's backed by Doug Casey. Would be fascinating to keep this real time thread alive and talk to someone at that community. 

I understand that connections to the police were necessary to get permitting and cut through the red tape.

I wonder if this upper class experiment is somehow isolated from the inflation.

Oliveoilguy's picture
Oliveoilguy
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Beneficiaries of Current Wealth Transfer

Arthur....Great Historical perspective on Hitler and the wealth transfer during that period.....So who are the beneficiaries today? and will they be similarly persecuted if a totalitarian Government takes hold?

And.....Arthur.....  Thank you for your latest posts that communicate to the simple folks like me. Often I feel like you are 2 galaxies removed and beyond my comprehension. No question you are brilliant.....I just get frustrated when I can't figure out what the blazes you are saying.  My uncle was a topological mathematician at Yale who was on the Einstein team, and I never understood a thing he told me.

FerFAL's picture
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Inflation is caused by

Inflation is caused by several factors. In the case of Argentina the out of control printing sure isnt helping, but as Chris says "faith" has a lot to do with it. People in Argentina simply have no faith in the country's economy and they are right to feel that way because the Argentine government is a complete wreck, with an economy that was for years based on the export of soybean, the "green gold" as its called in Argentina. With prices dropping and less than ideal production numbers they are quickly running out of places to get money from. Taxation is already though the roof for those that actually pay because they dont have "friends" in the gov. Pension funds have already been nationalized, imports are already heavily restricted, even banned for more than two purchases per year per person, which cannot exceed 25 USD. With such a grim scenario, it isnt a surprise to see the kind of social unrest we've seen recently and the recent devaluation.

FerFAL's picture
FerFAL
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It would depend on what you

It would depend on what you consider upper class. If you mean maybe a high earning doctor, a lawyer with his own firm or a successful business owner of some other kind that makes a couple million a year, then he's affected by all this. The ones that arent affected nearly as much are the handful of extremely wealthy elite. Not only do they have more than enough money, they also have the political connections to protect their interests and make sure many of the laws and regulations implemented dont apply to them. You see, inflation affects the different classes in different ways.

Say food and gral. grocery prices go up 30%. Say you have a poor family that basically works to put food on the table and little else, maybe spending 80% of their income in doing just that. In that case, the 30% inflation affects 80% of their budget. On the other hand, maybe a very wealthy person spends just 10% or 5% or less of his income on food and groceries. In that case the 30% inflation affects a much smaller percentage of his expenses. In the case of Argentina the middle, and upper middle class are the ones that are specifically targeted. Not only do they have money to actually be taken away from them, they are considered political enemies from an ideological point of view, so taxes on income, taxes and fees to be paid on their capital, price of private medical care, prices of private schools, they all go up, often more than the medium inflation. A good example of such a thing is the recent car super tax (passed in Dec 19, 2013) affects most new car purchases, with a tax of 50% of its retail price. Such a blow affects the person that could actually buy a new car, which in Argentina doesnt include the poor or lower middle class.

I personally feel Argentina is a bad place to be in right now, with the bans and restrictions to transfer money back and forth forcing people to use alternative methods which, leaving the person on unstable legal grounds. It is particularly bad to do this for a foreigner, even more so an American which the Kirchner government considers the impersonation of the evil capitalist, their favorite scapegoat.

Transcend's picture
Transcend
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Real Estate

Hi FerFAL,

Can you please talk about the real estate values (multi-family, commercial, strip malls, condos, single family homes, etc) in the different parts of Argentina?  Is the market stagnant or is there a lot of buying/selling?  Are prices rising with inflation?

Thanks for your interview and passing on your experiences.

Boomer41's picture
Boomer41
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America is not like Argentina

As FerFAL says, the people of Argentina are inured to the situation and used to suffering. So, as things go from bad to worse they just hunker down and make the best of it. I fear that in America most people are not prepared for any kind of suffering. Many Americans are pampered and soft and will suffer greatly when a reduced standard of living is forced on them.

There is also the black market currency to consider. In Argentina the black market operates in dollars which retain their value. We Americans will not have another currency to fall back on. It is unlikely that the Euro or any other country's currency will maintain its purchasing power when the dollar crashes.

For the above reasons, I fear that a financial crash will play out in the US rather differently than in Argentina. We will need new and different means to cope.

FerFAL's picture
FerFAL
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Sure, right now it is very

Sure, right now it is very hard to sell any real estate. officially you are no longer allowed to use USD for transactions. It was and still is very common for them to be done in cash, given the Argentines distrust of banks. Now, everyone that owns real estate is just holding on waiting to see what happens. The dollar ban had an impact in the real estate market that dropped sharply, from 20% to 40% depending on the area, in the last couple years, activity dropped 25% in the city of Buenos Aires, but overall most real estate brokers agree that they see their business going down. NO more credit also means no one has money to buy so that makes things even worse. If you have to sell property today in the capital city of Buenos Aires, expects to lose about 5% to 10% compared to 2011 prices, and make that 20% or more outside of Buenos Aires city. The recent devaluation may translate into higher real estate prices though, we'll see that in the weeks to come given that bricks have always been a somewhat safe refugee during times like these. At the same time the gov. with its restrictions to operating in dollars and harassment of anyone that buys anything, even cars, wide screen Tvs or just travels abroad, does make things worse.

Hrunner's picture
Hrunner
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Thanks and a caution

First, I wanted to thank Fernando and Chris for a helpful review of the state of things in Argentina.

I would give Fernando copious credit for his tireless work on preparing folks with lessons learned from actual life experiences, which is invaluable.

I am glad Ferfal challenges thinking in the preparedness community, because in general, and as readers will know from previous posts, I support the dialectic of having two sides of argument discussed thoroughly and thoughtful.

So in that vein, allow me an opportunity to push back at a few notions and themes that Ferfal presents.

(By the way, I think he is likely correct about most everything he describes, after a very painful transition occurs, and given a modicum of stability in the government and the world in general).

Here are some flaws in his thinking.

To his credit he alludes to differences in Argentina culture and American culture.  I have visited Argentina (beautiful country and I met many gracious and highly intelligent Argentinean colleagues during my visit).  But I clearly don't understand Argentina like Ferfal does, but I don't think Ferfal understands America like I do.

While humans share so many commonalities, in short, Americans in specific have a very strong independence streak, and will, IMHO, reach a breaking point that will not be pretty (I think all humans have a breaking point, but frankly some cultures value traits highly that Americans place low value on, like submission, getting along, suffering i.e. Russians, over independent living.  The motto "live free or die" speaks to this.

Admittedly the liberal big government progressives in America have attempted to beat these values out of our citizens and tried to replace them with collectivism, but it has been with limited success.

The second culture difference is that, how shall I say this delicately, Americans tend to get things done.  Especially when presented with a mission.  Moon shots, Manhattan projects, Yankee ingenuity, Rosie the Riveter, Iwo Jima, whatever.  You can draw your own conclusions about what this means.

Ferfal's point about looting suggests an element of rebellion in Argentina, but that frankly sounds more like criminality than people joining together to make a political point.  And in fairness, Fernando didn't describe looting as a political act.  I'm just using that as a culture example of response to tyranny and government chaos.

All this leads to the conclusion that if and when things like currency failure occur, I don't think it will be accompanied by an Argentinean shrug of the shoulders e.g. "oh well, we just have to suffer with this Marxist government and cope with another 50% inflation".  I believe it will be met with much more reaction.

Again, I love Fernando's points about physical fitness, having multiple skills etc.  I just don't think he has any idea how severe an American response to Kirchner-like policies will be when faced with a likely drop in standard of living to true poverty levels.

The issue about the dollar and escaping to another country are off base.  In Argentina, Fernando talks at length about how Argentineans escape the destruction of the peso by using dollars as a store of wealth.

May I ask, to which currency will Americans turn when the dollar is destroyed?  About the only money left is gold, silver, and hard assets.  So dismissing barter so quickly by Fernando seems premature, because Americans will have no other choice for a period of time.  Euros, Swiss francs, Yuan?.  Don't see that happening.  I'm sure a new "dollar" will be introduced, but there will clearly be a transition of some length of time, of some severity.

And after the dollar collapses, the whole world will be "in transition" i.e. in disorder.  Will millions of Americans be welcomed with open arms in countries around the world?  I don't think so.  Maybe the 0.1%, because they can buy their way in.  Unless you are in that league, I would not count on it.

In addition to getting yourself and your family and community prepared, as unpopular as this opinion may be on this site, I submit you better look at your government and change that too by voting for decent, humble, honest, small government candidates.

This is the only government and economy you have.

H

Boomer41's picture
Boomer41
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Yankee Ingenuity?

Hrunner,

Moon shots, Manhattan projects, Yankee ingenuity, Rosie the Riveter, Iwo Jima all happened a generation ago. Things have changed. The values of the present generation are much different. Modern Americans have a sense of entitlement which is not supported by their willingness to work hard. Other strings on this site have stories from employers who have jobs available but cannot find workers who have any kind of ambition or work ethic.

Our public schools have indoctrinated the present generation to not question authority and believe in a government which they expect to right all wrongs and provide a cradle to grave safety net.

47% of the population depend upon some kind of government financial support. When that is withdrawn we can certainly expect rioting, but only a very tiny minority will have the gumption to build something new and better from the ruins.

I expect that, in the aftermath of a dollar meltdown, TPTB will announce a new form of fiat currency which will be touted as the cure for all ills and the sheeple will trample all over themselves to get back on the government teat.

Members of PP will be more or less prepared, but we will be surrounded by millions of desperate people who have been completely blindsided and are utterly unable to cope on any level.

Snydeman's picture
Snydeman
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Boomer41 wrote: Our public

Boomer41 wrote:

Our public schools have indoctrinated the present generation to not question authority and believe in a government which they expect to right all wrongs and provide a cradle to grave safety net.

Not all of us, for the record. As a teacher in the public - and now private - sectors, I always went beyond the given curriculum to force my students to question assumptions, challenge evidence, seek their own path, and think critically and skeptically. I asked them to look for the history beyond the official history we were being spoon-fed. When I taught Public Issues classes I always pushed students to be conservative, moderate or liberal after thinking through the issues for themselves, rather than labeling themselves what others had told them they should be. I also regularly reward students for challenging even MY authority, if they can do so thoughtfully and respectfully, which they almost always do.

Also, for the record, I'm generally pretty liberal, but I don't believe that I have the right to pass my beliefs on to my kids. I want them to THINK, ANALYZE, and DO. Not follow. Then again, fiscally I'm a bit more of an old-school "hand-up not hand-out" liberal, even though socially and environmentally I swing much, much further left.

So, there are kids being taught to resist indoctrination. Take heart in that, at least.

Hrunner's picture
Hrunner
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Reality is a Teacher

Boomer41,

Your point is well taken. 

I hold out hope there is a significantly-sized group to lead the way to the next era.

As I watch the decline of our culture, I can't help but think we are a 'victim of our success', or perhaps as Chris might say, "a victim of our cheap energy".

To say another way, in the era of fossil fuels, we have the luxury of cheap energy and productivity based on technological advances, which in turns gives us the ability to hand out goodies to the folks while the music plays.

I watch the slow train wreck of increasingly large and oppressive government, while the propagandized masses fall into it's loving arms, grabbing entitlements with both hands, apparently supporting  violations of fundamental freedoms, suppressing free speech, demonizing and name-calling people and groups such as 'Tea Parties' rather than have a rational debate of ideas and install measurable metrics for measuring success of dubious social programs. 

I feel we in the concerned citizen camp are analogous to a mother calling to her children playing in the pasture at sunset, saying 'come in, it's getting dark, the wolves are coming', but the children, blissfully unaware, think she's crazy and ignore her.   Then the wolves appear at the edge of the forest.

Hrunner's picture
Hrunner
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Posts: 238
Next Stop, Soybean Nationalization

Let the nationalization (i.e. destruction) of the Argentina soybean industry begin.

Right on time, this article from the Financial Times:

"Peso plunge forces Argentine soya hoarding  
By Emiko Terazono in London, Gregory Meyer in New York and Benedict Mander in Buenos Aires,  

“Pesos are no use – the worst thing you can do is hold pesos.” 

[Key excerpts]

"Faced with a sharp fall in the peso as emerging markets are battered amid concerns over the fallout of central banks’ unwinding of monetary stimulus the country’s soyabean growers have packed their dollar-denominated crop into “silo bags” rather than sell it for cash, determined to hold onto it as long as possible.  
 

A new harvest is now set to start in April. With Argentina accounting for about a tenth of the world’s soyabean exports and almost half the soya meal trade, farmers’ decisions on whether to keep hoarding will ripple through global futures markets.  

The consensus: widespread soyabean storage will continue."

"Argentine growers have only sold 6 per cent of their soyabean crop to crushing plants and exporters, according to the latest figures from Macquarie.  This compares with 11 per cent at the same time last year, and 25 per cent for the y ear before that."

http://www.ft.com/cms/s/0/65c6785a-9266-11e3-9e43-00144feab7de.html

This is how food shortages and eventually starvation begins.  Next is nationalization.  Next is crop failure.  Next is starvation.

However, it does make me want to go long soybean futures.

H

Thomas76's picture
Thomas76
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Analogy

Hrunner. I like that analogy.I shall use it in the future in discussions with my liberal acquaintances.

Snydeman's picture
Snydeman
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Posts: 28
I think...

all this "liberal" and "conservative" talk is masking the greater problem, and enemy.

pinecarr's picture
pinecarr
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Posts: 1587
Ferfal on preps for Bugging Out from a War Zone

Ferfal has a good article "Living in a War Zone", as well as a short podcast, at http://www.ferfal.blogspot.com/2014/09/living-in-war-zone.html .  It is focused on making preps to bug-out ahead of time, in case you ever find yourself in that situation.  Apparently his latest book, "Bugging Out and Relocating: When Staying Put is not an Option" came out in June.  Here's a short excerpt from the article:

"Given current world events people are becoming increasingly interested in survival in war zones.

I did a lot of research about this topic for my latest book, learning from various events and accounts of what people did to stay alive so I’ll save you a lot of time: Surviving in a war zone is like surviving or living in a burning house or surviving in a sinking boat. There’s no “surviving” inside a burning building, there’s “getting out of there ASAP” to be done.  Sure, there are resources that clearly become precious during war such as food, water and medical supplies but it all comes as a far distant second best proposition to actually escaping such disaster unless you want to be reduced to living like an animal and constantly risking getting shot or blown to pieces."

Maybe time for a follow-up interview and podcast Chris and Adam?

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