Another Consequence of Economic Decline

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by Simon Black: Is
There a u2018Best' Currency To Hold RightNow2

Nearly 10 years
ago to the day, the government of Argentina collapsed. Beset by
weighty deficit spending and a completely unrealistic currency peg
to the US dollar, Argentina became the poster child for the golden
rule of economics: ‘that which is unsustainable will not be
sustained.’ It’s reversion to the mean.

Within a matter
of days, the country had burned through several presidents, the
currency collapsed, inflation soared, unemployment shot up, crime
rates spiked, and the government defaulted on its debt.

After limping
along for most of the last decade with a socialist agenda, the government
of Argentina is at it again. The economy is rapidly deteriorating,
and street-inflation has surpassed 25%.

the administration of President Cristina Fernandez insists that
inflation is not a problem, despite the Argentine peso losing 25%
of its value against the US dollar over the last three-years (and
far more against gold).

Fernandez has borrowed her plays from Atlas Shrugged. She’s
imposed capital controls, raided pension funds, nationalized private
property, and taken control of the media… all in a vain attempt
to delay the endgame.

A few weeks
ago, the government passed a package of new laws, essentially criminalizing
public protest under the auspices of combating terrorism. The legislation,
snuck in at a midnight session during the holiday period, provides
severe punishment for various crimes under a very
broad definition of terrorism

Fernandez herself
maintains that the law would never be invoked to restrict
the legitimate rights of Argentines. This, from a woman who simultaneously
passed legislation to seize control of the country’s newspaper

In her latest
move, Fernandez has stepped up her saber-rattling over the Falkland
Islands, a nearby archipelago that has been a British territory
since 1833 (it is now self-governing). You may remember that Argentina
invaded the Falklands in 1982 and was subsequently defeated after
a bloody conflict with Britain.

It’s a
sore subject in Argentina; the government still claims sovereignty
over the Falklands (known as Las Malvinas in Argentina), and Fernandez
is waving the flag once again.

Last month
Argentine naval forces were sent to frustrate commercial fishing
around the disputed territory. And in the most recent development,
Argentina, Brazil, and Uruguay announced that they were closing
their seaports to any ship flying a Falklands flag (all 25 of them…)

Argentina has
also mounted pressure on the British government to reopen negotiations
over the Falklands’ sovereignty. Thus far, the Brits have refused.

Cristina Fernandez’s
BFF Hugo Chavez recently added to tensions by saying, “The
English are still threatening Argentina. Things have changed. We
are no longer in 1982. If conflict breaks out, be certain Argentina
will not be alone, as it was back then.”

At this point,
it’s all just tough talk and petty annoyances. But here’s
the thing – there are four billion barrels of oil estimated
to be within the Falklands’ territorial waters.

Given the utter
insanity with which Fernandez governs her country and the desperation
in the Argentine economy, one cannot rule out the possibility of
her trying to grab Las Malvinas by force. After all, military conflict
is the ultimate social distraction.

I’ve often
written that economics drives everything. A solid, vibrant, competitive
economy lifts an entire nation into prosperity, while deteriorating
fundamentals and a socialist agenda create inflation, unemployment,
and social turmoil.

War is just
another one of those consequences. And given the vast deterioration
in the global economy coupled with deeply-seeded conflicts around
the world, the Falklands is just one of many that we may have to
look forward to in 2012.

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