Argentina Inflation and Black Market Money: A Report From the Ground

I recently returned from several weeks traipsing around Argentina and Uruguay.  I make a point to leave the country several times a year, and I always meet interesting people and see amazing things. In the case of my visit to Argentina, the economics and liberty geek in me was also very interested in the effects of the current Argentine government's socialist spending programs and its central bank's corresponding inflationary policies.One thing is clear about Argentines, at least the ones I encountered: they are largely an intelligent and informed people, with a healthy mistrust of banks and of government.  Despite her popular re-election in 2011, the government of Cristina Ferandez de Kirchner is a largely unpopular one if my non-scientific surveys of people on the ground were any indication.  People are very aware of the inflation occurring, and luckily they are equally aware that it is the policies of the Kirchner government that are responsible for it.This awareness largely stems from the financial crisis of 2002.  For a detailed history of the Argentinian economic collapse, check out the below video when you have a spare hour and forty three minutes:Since the crisis the Argentinian economy has officially "recovered", but much like the Bernanke-manipulated "recovery" in the United States, Argentina's rebound has been driven largely by government spending and currency inflation. In the past couple of years this has been kicked into overdrive. In 2012 the Argentine congress passed a rule change which would no longer require the monetary base to be backed up by international reserves and kept out of government control.  Now the central bank is headed by Mercedes Marcó del Pont, the Female Argentinian Ben Bernanke on Steroids. She and Kirchner have embarked on a spending binge that would make the Housewives of Orange County jealous.The Argentine government's official inflation figures, much like those in the United States and presumably with just about every other government in the world, are completely manipulated.   Currently the government says that the annual inflation rate is 11.1%, while most independent analyses put it at around 26%.  So what did two weeks on the ground in Argentina tell me?If I simply exchanged at the bank or took money out of an ATM, I would get the "official" exchange rate of 1:4.9 when changing U.S. Dollars for Argentine pesos.  Luckily I have a friend living in Buenos Aires who was able to guide me through the process of obtaining Argentine pesos.  He was able to obtain pesos on the black market, which has very recently developed in Argentina in response to the inflation, at a rate of 1:6.2.  For every $100 American dollars I exchanged, I was able to obtain 620 Argentinian Pesos, as opposed to the 490 (plus bank fees) I would obtain if I made the exchange through official channels.  The black market gave me a 26% better rate for my U.S. dollars than the Argentine government would have!It is impossible to walk through Buenos Aires without hearing the black market money changers.  The phrase "Cambio! Cambio" (change in Spanish) and some variation of "good rate for you, my friend" (in both English and Spanish) can be heard walking down any major street.  It is not merely tourists that exchange dollars for pesos, but locals heavily rely on these black market money changers as well.Due to the inflation of the peso and the U.S. Dollar's continuing reserve status and acceptance as "safe" currency, Argentines try to keep much of their savings in U.S. dollars. However, it is illegal to buy U.S. dollars and illegal to use U.S. dollars for business transactions.  Again, this is where the black market money changers step in to provide the service of exchanging pesos back to U.S. dollars so that people can at least attempt to stave off some of the inflation and keep some money in U.S. dollars.It is now a little over 3 weeks since I was in Argentina and the black market peso:dollar exchange rate was 6.2:1.  The exchange rate on the ground right now is about 7.1:1.  That is an increase of about 14.5%...in 3 weeks! Let's give Kirchner the benefit of the doubt and call that 14% in a month for arguments sake. This would work out to an annualized inflation of about 168%, if my calculations are correct! Granted these black market rates will fluctuate up and down due to various factors, and this is just a small experiment by someone that doesn't claim to completely grasp the ins and outs of inflation calculation, but surely this is indicative of the grandiose level of inflation taking place.Argentina is one of the most fantastic places I have ever visited. The people are intelligent and witty, the landscape is beautiful, the food and wine are spectacular. Hopefully the monetary insanity will end soon, but history tells us government will not usually end their bad policies of their own volition.I will continue to analyze and provide updates on the economic situation in Argentina, with my sources on the ground keeping me apprised of the monetary happenings you won't get from looking at official government data.  Until then, I highly recommend a trip to Buenos Aires where, at least for the time being, delicious steak and wine dinners are getting cheaper by the day....as long as you can navigate the black market in money.Receive access to ALL of our EXCLUSIVE bonus audio content – including “Conspiracy Corner”, “Degenerate Gamblers” and the “League of Liberty Podcast” by joining the Lions of Liberty Pride and supporting us on Patreon!