Billionaires are taking over Argentina – does this herald a new-age of imperialism?
“The opinion against peoples rises because everyone speaks ill of peoples without fear and freely, even while they reign; princes are always spoken of with a thousand fears and a thousand hesitations.”
Machiavelli, Discourses on Livy
Machiavelli said it best: power doesn’t belong in a vacuum – the will to power is overwhelming and in itself, compels people to seize opportunity.
Certainly, a government’s failure to appease its citizens creates an arbitrage opportunity for those masters of the universe to assert their authority, garner influence, and even instantiate their own foreign policy as a result. Baron Rothschild’s aphorism of buying when there’s blood on the streets is applicable, not only for stocks, but for dominion over Earth – political volatility is an ideal breeding ground for imperialism.
And historically, colonialism has been justified on religious grounds. Indeed, it was Theodore Herzl, one of the first proponents for Zionism, who originally pondered where the ideal Jewish nation would be located. "Shall we choose Palestine or Argentina?” Herzl asked in his book, The Jewish State, “Argentine is one of the most fertile countries in the world... The Argentine Republic would derive considerable profit from the cession of a portion of its territory to us.” Later, he concretely articulates the plan to swallow Argentina whole: debt alleviation in exchange for a private ethnostate.
Unsurprisingly, Argentina has recently declared its ninth sovereign default in the last 200 years. The inevitable jokes (only three things in life are certain: death, taxes, and an Argentinian default) forget the fact that foreign influence essentially engineered these debt crises.
The defaults themselves contain a strong theme – here’s a brief rundown of the four most pertinent:
After Argentina’s independence from Spain in 1816, the economy ballooned with foreign trade due to its abundance of fertile land and agricultural surplus. As all was going well, the nation raised debt from London and therefore, new money enjoyed their very own ‘Roaring 20s’ before the Bank of England raised its interest rates in 1825 and sent the economy crashing back to Earth in an Icarus-like fashion.
The most famous default took place in the 1890s. Clearly, Argentinian politicians forgot the lessons of their forebears and readily borrowed money from London banks to fuel the expansion of railroads and other utilities. This was conjoined with the fact that commodities flourished: there was a bubble in everything from sheep’s wool in the expansive Patagonian farmlands to gold in Tierra Del Fuego.
In addition, when the bubble eventually burst, the fallout resembled that of 2008 where the entire world was crippled; the Anglo-Saxon Barings Bank had to be bailed out by the Bank of England and all the banks in Buenos Aires were sucked dry. Four years later, the parochial Argentinian President took even more capital from London’s banks.
Nearly a hundred years later, in 1982, the government took more excessive capital from American and British banks to fund more projects in transportation; the national debt increased roughly six-fold to over $46 billion. And once more, the economy blew apart when Federal Reserve Chair Paul Volcker abruptly raised interest rates to 20% and caused a debt crisis, not just in Argentina, but in 27 separate emerging markets.
In 2001, citizens were dealing with the fourth year of a massive recession and GDP had fallen by 2/3 – it was the nadir of darkness. Much like the Roman Empire saw the year of the 5 emperors, Argentina followed suit with 5 presidents in 2 weeks – winning the ill-fated record for the largest debt default in history at the time.
Like usual, the president, Cristina Kirchner, was going to restructure Argentina’s $95 billion worth of outgoing debt, so investors would be forced to take a haircut of 70% on the dollar; unbeknownst to the Argentinian government, Paul Singer, CEO of activist hedge fund Elliot Management, never accepts defeat and fifteen years later, saw a return of nearly 4x on his initial investment after detaining one of the nation’s naval vessels. Kirchner was eventually imprisoned for corruption.
Everyone is puzzled as to how the Argentinians never learned their lesson, so much so that its abysmal 20th century performance coined the term “Argentine Paradox” among economic historians; one is flabbergasted as to how a country blessed with so much (fertile land, climate, and natural ports) can still fail economically and politically. It’s easy to blame the country for poor governance, but it’s not as if the government is excluded from the rest of the world – there is a pattern to all the defaults, namely an overwhelming excess of foreign investment.
Every Argentine default is similar; the nation’s budget forces them into a cycle of national deficits to seeking foreign investment to hopefully paying off their debts, thereby creating a boom and then the ordained collapse. Each time, politicians believed that their time was different: their economy was robust enough to withstand foreign intrusion; they could wrangle a better deal from the world’s most cunning investors. Still, whether it was the British or later, the Americans who injected billions of their own currency, Argentina ended up in financial and societal disarray regardless.
Yet, could this time actually be different? Billionaires like Joe Lewis are eager to buy up huge swaths of the country, specifically in Patagonia, and turn it into their own fiefdom. When the incentives between capitalist and ruler differ, what are the consequences for the nation as a whole? In a nutshell, they want Argentina to forgo its claim to Patagonia in exchange for debt relief even though these same individuals instigated the debt crisis through an intrusion of foreign investment, which always come with strings attached.
Israel but for Americans
“[Joe Lewis] has essentially bought out the local, regional and even national government of Argentina, allowing him to operate with impunity while he acquires more and more territory through land purchases of dubious (if any) legality, intimidates and threatens locals, usurps crucial water and energy resources from local towns, and operates his own international private airport that no one but he controls.”
Joe Lewis was George Soros’ partner during his infamous short of the British pound in 1992, a day now coined ‘Black Wednesday;’ but his specific claim to fame was his repeated short of the Mexican peso only three years later: this led to a massive upwards jolt in the unemployment rate and poverty while tying the fate of the Mexican government to the IMF. The story is remarkably similar to that of Argentina post-default.
While Soros took the blame for Black Wednesday, especially for his aggressive remarks about “going for the jugular” of the Bank of England. Yet, Lewis apparently made more than Soros that day (on a scale of billions) and for the most part, he’s eased out of the limelight since then – content to operate his English football team, Tottenham.
However, as MintPress divulges, that’s not to say he has removed himself from international affairs; like Soros, he has shrewdly been aware of the necessity to profit from crisis but to do so astutely and without a flare. Those who are inclined to believe that governments have laws to prevent excessive international capital would be right, except for the fact that Carlos Menem, Argentina’s president of the 1990s, repealed the 1944 law that foreigners could only purchase a fixed amount of land in the country.
Despite the fact that every president since Menem has taken favors – financial and otherwise as shown from Kircher – from Lewis, a cause for deeper concern is how he has wrested control of public access to water supplies, roads, and his airport from locals. It’s not that they’re blocked to everyone, Lewis invites the IDF, Israel’s military members, to spend a fortnight on his Lago Escondidio estate where they are free to do as they please – the sign is crystal clear: Argentinians aren’t allowed.
Billionaire Foreign Policy
“We are not a state here [in Galt’s Gulch], not a society of any kind— we’re just a voluntary association held together by nothing but every man’s self-interest”
Since the time of Herzl, future Israeli ambassadors to Argentina have waxed eloquently that Israel is for European Jews, while Argentina is for American Jews. Some may laugh at the situation in Argentina and flippantly remark that the story is similar to a Randian novel. Our post-apocalyptic world has made the utopic notion of Galt’s Gulch in Ayn Rand’s seminal work, Atlas Shrugged, possible. In Reviving Utopia, I discussed why utopias, like those espoused in Soviet Russia, often fail: they lack an end game.
In Galt’s Gulch, the prodigal hero, John Galt, mentions: “It is against our rules to provide the unearned sustenance of another human being.” Rand fails to consider how families would function in her atomized world – genius men, for now, must still interact with society whether it be economically or socially. Nevertheless, members upon acceptance into the elite community swear that they will never “give to the world the benefit of his mind;” this is in stark contrast to how we think about public goods.
By this logic, nobody in the prestigious abode of Galt’s Gulch would develop internet infrastructure – not because it’s blasé – but because the majority of people would benefit from their work. Yet, like I wrote in The Sovereign Investor, America requires an infrastructure upgrade in the dual worlds of atoms and bits – we need our best and brightest to work on these problems. It’s nonetheless a mistake of the first order to believe that our lives resemble Robinson Crusoe on a deserted island; in reality, our world resembles that of Ernest Shackleton’s daring adventure across the Antarctic. For heroic men and women, society is a beast to be tamed and a chance to test their mettle.
While the situation in Argentina is slowly morphing into Galt’s Gulch, it’s part and parcel of a broader issue where those with means can increasingly domineer and imperialize the world in the physical and digital realms. It’s a truism that billionaires have always held immense sway over legislators, presidents, and therefore their country; however, we’ve never witnessed an instance where a few billionaires carve out a nation for their entourage.
It will be equally surreal and unsurprising if Lewis and Soros succeed in building a private state – more than most, they’re indomitable men for all markets. No matter their grandiose vision, what is apparent is that Argentina’s politicians have repeatedly sold out their citizens in exchange for a taste of wealth and power. What was once a brilliant nation with biblical levels of wealth and culture has thus been bankrupted many times over.
The challenge of our time is in paving the path forward for the world we desire; when our culture is aging into its Twilight years and our institutions are going gently into that good night, the populace seeks truth in those who mold the world to their liking. Unchecked power promises a wondrous utopia, but naturally overextends itself, failing to consider all the parts required for assembly.
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