The solution could require ‘the madman’ with a chainsaw. People adapt.
By David Enna, Tipswatch.com
During my recent visit to Argentina I asked a tour guide in Buenos Aires about inflation, because that’s a topic that always interests me.
Guide: “Inflation in Argentina is improving. It was down to 2.2% in January.”
Me, being ignorant: “2.2% annual inflation? That’s great.”
Guide: “2.2% a month.”
Ouch. I should have been more aware of the traumatic issue of inflation in Argentina. It is so dangerous and ingrained that the Buenos Aires Herald ran this headline on Feb. 13: “Argentina annual inflation plunged to 84.5% in January 2025.” Plunged to 84.5%.
Since I returned, the nation reported February inflation at 2.4% for the month, up a bit from January. But annual inflation dropped to 66.9%, the lowest since July 2022. Here is the annual trend over the last 8 years:
As recently as July 2024, annual inflation was running at 266% in Argentina. It has been coming down recently in the wake of the November 2023 presidential election of Javier Milei, a libertarian who has made sweeping cuts in government spending. His approach is known as “shock therapy” and includes reductions in public sector jobs, subsidies, food aid, along with freezing wages and pensions.
Milei, a self-described “anarcho-capitalist,” is famous for wielding a chainsaw in public (and for giving one to Elon Musk recently at a Conservative Political Action Conference in the U.S.). He told that group: “The only rational path is to shrink the size of the state as much as possible.”
Although inflation is declining rapidly in Argentina, Milei seems to be somewhat unpopular in a country that swings from left to right with every major election. Wage and pension controls — at a time of continuing high inflation — have recently triggering violent demonstrations.
Milei, 54, is known in Argentina by both critics and supporters as “El Loco,” the madman. Milei claims he hasn’t combed his hair since he was 13, adding: “From that moment on, the invisible hand combs my hair.” From a 2023 The Sun report:
A biography, El Loco, by journalist Juan Luis Gonzalez, told of Milei’s affection for his dogs, claiming he uses a spiritualist to seek guidance from his beloved English mastiff Conan, who died in 2017 and has been cloned four times.
Also, Milei created a huge controversy last month by endorsing a meme coin called $Libra on the day it was launched. Within 40 minutes, its market value soared to about $4.5 billion. Hours later, its value plunged by about 89% and the president “unendorsed” it. A criminal investigation is under way.
Wretched economic history
I certainly can’t explain how Argentina got into this economic mess, but Milei didn’t cause it. These problems have existed for decades. Rampant government spending and massive government borrowing are two important factors. The government has defaulted on its debt nine times. Argentina’s currency was devalued by 30% in 2015, and then again in 2016. Soon after taking office in December 2023, Milei devalued the peso by more than 50%. From an Associated Press report:
The South American country’s economy is such a basket case — and has been for so long — that many analysts believe that only such radical measures offer a realistic opportunity to rescue the economy. What makes his challenge so difficult is that Milei’s plan seems certain to make people’s lives worse long before they get better.
What does this mean for a typical Argentinian?
Our guide in Buenos Aires, Karla, talked about how people cope with out-of-control inflation. Some of her insights:
No sense in saving money. Got money? Spend it, because its value is going to decline dramatically over time. For this reason, you still see crowded shops and restaurants. In many cases, people pay with wads of cash.
CD rates. Karla said most people in Argentina would not consider putting money in a bank for longer than one month. Too risky. A one-month CD today is paying an annual rate of about 27%, but that remains well below the inflation rate of 67%.
Getting a loan. Who is going to lend you money when inflation is rising 67% a year? Getting a car loan or home mortgage is very difficult, and the interest rates would be severe over time. From the site TheLatinInvestor.com:
In Argentina, most transactions are conducted using cash, primarily in the form of US $100 bills. It sounds primitive but this is how it is.
Banking. People in Argentina don’t trust banks, and the country has a history of widespread bank failures as recently as 2001. U.S. banks don’t have operations in Argentina because of the unpredictable nature of the economy. This makes it a difficult environment for foreign investment.
U.S. dollars are popular. For people who can afford it, exchanging pesos for dollars is highly desirable. The current exchange rate is about 1,069 pesos to $1. In March 2023, that number was 200. For major purchases like cars or homes, $100 bills are often the desired payment method. From a New York Times article:
Nearly every big purchase in Argentina — land, houses, cars, expensive art — is done in tall stacks of U.S. currency. To save up, Argentines stuff bundles of American bills into old clothes, beneath floor boards and in bombproof safe deposit boxes past nine locked gates and five stories beneath the ground.
A sense of normalcy?
Argentina’s poverty rate has recently soared to 57% amid Milei’s austerity measures and currency devaluation. But life goes on. Prosperous areas of Buenos Aires look much like anywhere in Europe, with elegant shopping, cafes, nightlife. Many people have adapted to extremely high inflation and just hope for a solution.
Argentinians have lived with high inflation for decades. They have learned to survive, even in this harsh reality. From a recent discussion on Reddit:
We have some ways to mitigate inflation, but at the end it destroy us anyways. The things we do are: Spend the pesos as fast as we can in anything that will maintain or gain value against inflation, lower our lifestyles as the inflation surges, and the principal method for saving or planing long term is buying dollars or euros, most Argentinians have savings in dollars. …
All income is disposable income when saving makes no sense. What it destroys is any kind of long-term planning.
Most people will never be able to afford a house of their own for example, or a brand new car.
My motto for buying things is “If you have the money and want/need that, buy it now, tomorrow it will be more expensive.”
In the United States, we recently went through a very brief period of 9% annual inflation, which dropped to half that within a year. Yet, this was somewhat traumatic for a nation used to stable prices. Even today, as inflation drifts lower, many people are feeling the pain. But are we at the stage requiring a “chainsaw”? No, I’d say more like pruning shears.
Remember: Things are very good here. We have a good thing. And yes, inflation is an enemy we must resist.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
Perhaps Argentina should go the way of Ecuador and abolish its currency and only use dollars, or better yet Euros. The Musk/Trump mob is intent on devalue-ing the us dollar ! That will make usa more competitive, but at a cost to its citizens of lower lifestyle. USA is becoming more like Argentina because of one thing: it’s corruption at the highest levels. TIPS will not protect you from a worthless Dollar.. buy foreign currency like the Euro and the UK Pound.
I traveled to Ecuador last year and found the country interesting. One huge factor in its favor is that it has an oil industry (in the Amazon area, unfortunately) and actually has a trade surplus of $1.2 billion with the U.S. That makes using the dollar work. ($100 bills were very popular there, too.) Argentina has a trade deficit of $1.9 billion with the U.S.
Thanks David, another excellent article!
I was in Argentina before the current inflation, but still during a time of economic distress. We were ripped off by a taxi driver, in a scheme involving him sticking us with fake currency during the payment process. Unfortunately, the impoverishment of large swaths of the population can lead to normalization of fraud as a survival technique.
I will continue to include iBonds and TIPS as part of my investments for their inflation protection values. I think they will do quite well the next several years as inflation seems almost certain given the current economic decisions, though likely not as high as Argentina!
Regarding Treasury Direct, I accidentally locked myself out of my account and was very pleasantly surprised at the excellent customer phone service. I called in, the call was answered within seconds, and my issue was resolved. They also updated my email address for me. I find Treasury Direct to be a really good service, but only use it for new iBonds and use a brokerage for other treasury issues due to the ability to buy and sell on the secondary market.
I still think baseline US inflation should be in the 3-4% range and not in the 2% range, but people are mad over 2% and wish for nostalgia when prices were much lower, forgetting that their income was lower as well. Over the next decade or two, though, the US dollar will probably lose its reserve currency role, or be on equal standing with the euro, assuming they don’t screw up the pooch like we did. That will certainly make TIPS more interesting.
The Fed’s 2% goal applies to the PCE index, which tends to track lower, but even then 2% may not be achievable in the long run. All-items CPI has run at higher than 2.3% for every 30-year period starting with 1971 and beyond. The latest number is 2.5%, through February 2025. The reserve currency issue is huge, and current U.S. policy seems to be begging the world to find an alternative.
“I should have been more aware of the traumatic issue of inflation in Argentina.” Sort of privilege and exceptionalism wrapped into one.
And this is why international travel is important. Where have you been recently, Dog?
I have not traveled internationally. I was not certain whether your statement was sincere because even moderately in-tune Americans have some awareness of the hyperinflation experienced in Argentina, Turkey, Zimbabwe, Venezuela.
I enjoy and respect your site, and I did not intend to offend you but the statement reminds me of my own difficulty. The city and county where I live, the majority of my neighbors pass every millage because they can afford to. Many of the millage proposals are not sensible from an economic or social analysis.
We are being taxed out of our house. It is a type of inflation by virtue of greenlighting every proposal.
The United States needs to get its spending under control, the virtue signalers should check their privilege, seriously.
People fled Argentina for many more reasons than “economic catastrophes there.” In the decades since the Peron regime, the country has seen a stream of military dictatorships interspersed with “democratically” elected governments. Some of these “tough guys” actually not only arrested their political adversaries, but tossed them out of airplanes without a parachute. The economic story of Argentina in the last 100 years is one of tragic decimation of a large and robust economic middle class to widespread poverty, national bankruptcies and hyperinflation. It is unclear whether Milei’s policies will be enough to right the listing ship, but having a political leader with uncombed hair and symbolic chainsaws are the least of the staggering problems facing citizens of Argentina.
Initially when you wrote about Argentina, I flashed back to the populist Juan Peron and his zigzagging economic policies as the likely culprit, but reading up on Argentina’s economic history in Wikipedia shows a long history of interventionism and hyperinflation. Apparently no one saves money there (at least Argentinian pesos) because everything will cost more tomorrow. It sounds like a very disconcerting place to have to live… at least as a local.
So far the DOGE cuts -estimated at $115 billion or 1.7 % of the 2024 Federal budget-are more like nail clippers than pruning shears or chainsaws. Milei actually cut Argentina’s budget by 28%, much of the savings coming from cuts to government pensions, probably a bridge too far for Trump.
One thing they do share, besides a lot of hot air, is the idea that defense spending is sacrosanct. Milei wants to more than double defense spending in Argentina to 2% of the budget and Trump just announced a plan to build “a lot” of F-47 fighter jets at a cost he said “We can’t tell you ” but estimated to be in the 100s of billions of dollars.
There is no “savings” from the musk/trump chainsaw.. only a transfer of monies to Musk companies that will get the contracts for air traffic control, computer software and others, the $ created by tariffs will go to tax cuts for billionaires.. not to reduce the deficit. The economy will tank when the world unites against us.
Argentine is a fascinating economic case. Thanks for this contribution.
I can remember meeting people 30 years ago who had fled the economic catastrophes there. We can only hope that shock therapy will continue to work and that voters will see its positive impacts. Other countries have succeeded, it is not easy.
See WSJ article today on Argentine’s 100-year bonds sold in 2017. I too mocked those buying them, looks as though the investors were right.https://www.wsj.com/finance/investing/the-dumbest-investment-in-the-world-was-better-than-owning-safe-treasurys-e2046748?
Always interesting to look at other cultures and how they handle their finances. I would be interested to hear what the people you talked with thought of gold and bitcoin. TIPS are one tool and I assume there are no Argnetinian TIPS that the populace can buy.
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Caeful what you wish for. TIPS opportunity loss if inflation goes away. Whats the point? I once got a 15% adjustable rate mortgage, a non event.
“But are we at the stage requiring a “chainsaw”? No, I’d say more like pruning shears.”
Sorry, Sir. Better a chainsaw now than a chainsaw later. If the waste and fraud is only HALF as bad as what is being discussed, many future problems could be minimized or avoided. It’s time the administrative state and the entitled slackers in DC wake up, smell the coffee, get to the office and get to work, or get lost. Both political parties are complicit in this disaster. Clean it up now.
What are tips worth if inflation is zero?
The coupon.
If inflation averages zero over the term of the TIPS, the investor gets back the original par value and earns whatever the coupon rate was over the term. So that equals a return above inflation. (No TIPS have ever matured with a 1.0 inflation index and that is highly unlikely.)
Butopia, I respect that opinion. However, my problem is that the DOGE spending cuts are targeted at $2 trillion (a goal it may not reach), and the GOP tax cuts are potentially capped at $5.5 trillion over the same time period. That results in a much higher deficit. I’m all for spending cuts that actually reduce the deficit + tax changes that create zero or little revenue loss.
My take was you supported Doge, another Maga. Sell the sizzle not the real likely numbers in reality. Alot of peoples lives hurt for a nothing burger.
There’s no way they can cut 2 trillion without cutting social security and medicare. They could shutdown the government excluding DOD and not save 2 trillion. They throw out a lot of big numbers but the verified doge savings right now is only 8.6 billion. The IRS expects 10% less revenue this year due largely to doge that’s 500 billion less. I’ll admit for voting for Trump and still would considering the alternative, but I’ve been really disappointed so far. I feel like I’m watching a reality tv show not serious people.
gg80108, if that take was directed at me, I’d consider it the funniest comment of the week. Never before have I been taken for a MAGA.
Welcome back, David!
By the way, I’m really looking forward to your blogs about iBonds next month and the upcoming 5-year tips auction. I’ve been planning on buying iBonds in April, but now I’m thinking I should max out my contributions to 457b, IRA, and 401k, first. Nothing left for iBonds at that point.
I’ve thought long and hard about whether or not I want to continue buying I-Bonds in light of the current administration’s war on gov’t institutions. Specifically: Treasury Direct getting even worse with customer service in light of DOGE. Too bad we can’t buy I-Bonds outside of the Bureau of the Fiscal Service!