Whoa. The value of the Argentinian peso just fell 54% like that by government action. In this video, we're going to break down exactly what that means to individuals around the world. First and foremost, let's understand what it means when the value of a currency plummets.

It's basically forced inflation. Think about it this way, let's say you are going to spend one American dollar worth of money on let's say bread. Okay, so this gets you. Uh, one loaf of bread in Argentina.

Let's say it might be a small loaf of bread, but it gets you a loaf of bread. Okay, this used to be worth 355 Argentinian Pesos Well, now, in order to actually afford $1 or therefore, that one loaf of bread, you no longer need 355 Argentinian Pesos No, no, no. now you actually need 800. Argentinian Pesos So that just means your one loaf of bread is no longer going to cost you 355 Argentinian Pesos At the store, it's actually going to ring up at 800.

Argentinian Pesos That is a lot. That is quite a lot and a lot of folks are wondering, wait a minute, why would you force inflation like this? Ah well. This is where we get to the Argentinian President's plans to rightsize the government. This figure right here: 355 Argentinian Pesos A$2 has been artificially propped to this level.

In other words, it probably should have inflated to 800 by now anyway. but the government has purposfully been burning Argentinian Pesos burning through their reserves, artificially keeping the supply of the Argentinian peso low to try to stabilize the value of their currency. Basically, if none of that made sense, just forget about all of that for a moment and just think this: the government was trying to rig their money to make it worth more than it actually was. They were trying to rig the system.

Okay, it wasn't working. Poverty skyrocketed to 40% The government was bloated. Javier Mle says, look, there's no money. We've been living this decade of opulence and we don't have money to afford this and it's time to cut.

That's why he's known as Mr chainsaw. During the week he sits in his office and Ponders about currency and Bitcoin and on the weekend you see him with the chainsaw cutting the government's spending. That's at least what the memes say. But Javier is not just pretending he is also doing.

And so what is he specifically now doing? He is introducing austerity, fiscal austerity. He is expected to now slash the amount of employees at the government throughout the various different Ministries in half. That's minus 50% of government workers 50% gone. This sounds awfully familiar to what you hear.

Individual like: VI Ramaswami say who? say hey, Look, we're not even going to go through and pick the 50% We're just going to say if your social security numbers even, you stay If it ends in an even number, right? Uh, if it's odd, you go And that's how we're going to cut 50% of government workers. Well, that is an idea from Ramaswami, who's polling somewhere around plus or minus 5% in the Republican primaries, which if you average in Democrats puts him at 0% I mean 2 and a half% The numbers aren't Rigg Don't worry, uh, elections are are fine. So uh, we've got austerity coming to Argentina So what does this mean? Well, unfortunately, it does mean some public services are probably going to begin suffering. This is kind of what we saw when the European Union started having trouble after the 2008 recession, with the Sovereign Debt crisis they called it and the European Union was potentially going to collapse after only being you know, somewhere around 8 years old.

So between 20111 and 20 2013, you had uh G trash collection service stalled in Greece For example, in Athens you had immigration problems, you had graffiti problems, you had crime problems, you had a lot of issues. And that's because austerity is not fun. But austerity is seen as the lesser of two evils. Because you kind of have this choice.

You can have austerity where the government starts tightening their belt and people in the government spend less money. again, less of those government services, right? Or you could have basically this rigged currency which is what you had and then you end up suffering due to uh, inflation as well as joblessness. Uh, so even though this currency change right here, which I know is a little tricky, induces almost instantaneous inflation, let's understand the Practical implications of this. Okay, so let's let's think about what this actually means for people who are in poverty and for other people.

So when you force inflation by about 54% like what we just saw Javier Malay do overnight, What happens? Well, first of all, everybody who owns debt denominated in Argentinian Pesos They just took a 54% haircut. Boom Like that the President didn't even have to negotiate with those Bond holders. the President just said it is. Boom Now, how can you pull that off? Well, theoretically, there are a lot of things you can do.

You can Peg your currency to the dollar at 1 to800 which is what uh, happened here. You could theoretically print a lot more money, but then that leads to more government spending. So that's not necessarily the best idea. So you just said it that way.

and this is the way you trade it at the rule you set. This is now what the dollar. The dollar is now worth $1 is now worth $800 Argentinian Pesos That's the way it works. So that all of a sudden means all these debt holders get a 50% haircut and that's why.

how does that work? Well Again, let's say they had uh, $1 worth of debt. Now uh, that dollar is worth 54% less. So in American dollars, they've really only got about 46 cents left. That's kind of the way to think about it because remember, this is denominated in pesos and that value just fell.

Okay, so is. to simplify the debt holders get mega screwed. Anybody who's got outstanding debt that they expect to get repaid in Argentinian Pesos with they get screwed. So like Bond holders.

now, who doesn't get screwed are people who hold debt denominated or were backed by. let's say, real estate, Because the value of their real estate might actually now substantially go up. and so will the value of wages. And so will the value of things like that loaf of bread.

So think about it this way: if you have a house, that's you know, 355,000 Argentinian Pesos That $355,000 Let's just say dollar. Okay, to keep it simple, house is now theoretically worth $800,000 If your wage was $355 per hour, you're now making making $8 per hour Argentinian Paces If that bread you were buying was worth, let's say uh, a dollar. it's now somewhere around 2.1 fiveish. Something like that, right? So in other words, if you have assets, those are going to be valued higher.

If you're a worker, you're going to get paid more. If you need to buy bread, you're going to pay more for that bread. But you're also getting paid more. You own real estate.

You have more assets. So again, the person who gets burned is we'll put it over here, the lender and anyone holding cash. So if you were holding cash in a mattress, you got burned if you lend money to somebody else and you're going to get cash back, you get burned. The lender gets burned.

So hopefully that is a little clear now what is practically next for the government. Well first of all, now 50% less people working at the government. Obviously some services are going to have to go. So a lot of Ministries a lot of Public Work projects are just going to get canned.

So usually what you see in cases like this is: you see less trash pickup, You see less road infrastructure building. You see less money for schools, You see less money for whatever it is that you need the government for. You see slower processing for government permits, whatever it is. But those people now laid off have this hope of at least going into the job market getting paid more now and hopefully being able to provide value in a capitalistic way again.

Bottom line out of all of this because I Realize this currency stuff is complicated. If you had cash, you just got burned. If you had a loan and you're expecting to get repaid in Argentinian Pesos you just got burned. If somebody is in poverty, they probably had virtually no cash anyway.

cuz after all, you're in poverty. so you now go make more money. Uh, so it doesn't really affect you Now That is a good thing because you're making more now. You're spending more, right? Because instantly your wages, gas prices, bread prices, housing prices, everything just whoop adjusts up again.

People holding cash or people lending money, they get burned. So people who the Argentinian government money, they get burned. But the President can simply say, well, that was the prior government's fault. We're going to do this differently.

So what is the goal After a company goes through austerity? Well, the whole purpose is to try to get your debt down at the same time. The goal is for the government to keep more money. They do this how they spend less and then they tax people out there working hard for their money A little bit more. But that's okay because the government I want say And part two is because the government is spending less money, not just on servicing that debt, but also on government programs.

The goal of the government is try to increase their net income so potentially without actually taxing more. Although they could tax more. potentially without taxing more, they could actually have a government budget that functions again or that balances again. so again.

lowering your exposure to debt, lowering your expenses, trying to bring everything into balance. What was happening was not working. It was a rigging of the currency system and it led to a lot of poverty. The hope now is by minimizing the spending of the government, the capitalistic ways of the way the economy Works can hopefully rebuild Argentina in a way that the government starts actually having built up cap cash again that then they can start maybe in a few years spending on projects that they want to spend money on again in the future.

just going to take a little bit of time to get there. It's going to be a shock factor to get through between now and them, but President Malay has started. He's starting to do exactly what he promised. Eventually, it wouldn't surprise me to see the country of Argentina just solely use the US dollar.

Uh, although pegging to the US do is maybe the better option because it gives you the opportunity again in the future to turn that money printer on again when you desire to. It gives you optionality. So setting this equivalence of like, oh yeah, 800 Argentinian Pesos equals $1 Creating a peg like that is just one way to basically use the US dollar without having the US dollar. It gives you options in the future.

Think about that a little bit differently for a moment. If you care. Imagine this. Let's say you're California and you have a governor who spends money like crazy and doesn't actually know how to keep money.

Because you know? Well, we keep that discussion separate. Uh, and all of a sudden you have a negative $68 billion deficit. The problem for California is even though they've been so mismanaged, they don't have the opportunity to do what Argentina did because California uses the US dollar. California can't just go devalue the dollar H All our debt is now 54% off.

Can't do that because you're using the dollar. So Argentina by not being on the dollar or fully going to the Dollar has the opportunity to do what they're doing now and burn their debt holders. Of course, the concern is if you do that too much, nobody's going to lend you money in the future. But I think Argentina has sort of reached this point of no return where people sort of expected this was coming anyway.

and uh, the bond holders uh, who were speculating and taking the other side knew what they were getting into. There's a full update on what's going on in Argentina Yeah.