Austerity measures in Argentina were received with great indignation.  Will the same be true in the US when bank bailouts are turned off?

January 1, 2024

By: Bobby Casey, Managing Director GWP

One of the bigger moments in 2023 was the election of Javier Milei in Argentina. Perhaps media outlets and the punditry are downplaying it some? And perhaps there are libertarian purists who scoff at the idea of a self-proclaimed anarcho-capitalist assuming the position of president?

Milei inherited decades of compounding mess:

True to his word, he is instituting his austerity policies.

The cuts are a part of Milei‘s sweeping economic measures that will erase or rewrite over 300 rules regulating and restricting private enterprise within the nation.

This is no surprise since he’s been very vocal about his intentions. Nonetheless, his dissidents took to the streets in protest.

Milei‘s first action has been to reduce government waste, cutting over 5000 bureaucratic workers with more layoffs pending. He is also working to cut a number of public works programs and to curb overall spending. His announcement of huge cuts to state subsidies on fuel and transportation are the likely cause of the recent protests, with millions of citizens heavily reliant on government assistance.

And this is only the beginning.

If Milei pulls off even a fraction of his agenda, he is in for a spate of recalcitrance from anyone left of him. The tantrum of taking away all the government welfare and programs feebly propping up what remains of the once wealthy nation will be audible around the world.

We remember when austerity programs were tried in Greece.

Three international bailouts saved Greece from toppling out of the eurozone during a decade-long debt crisis that peaked in 2015. But austerity imposed in return for financial aid meant millions of Greeks saw their livelihoods hit as taxes soared and wages and pensions were recalibrated.

It was a painful adjustment to get the country’s finances back on track. Since its bailout programme ended in 2018, Greece has regained market access, wrestled down its record debt and growth is set to outpace the eurozone’s average.

There were massive protests. And people are still reeling if not hurting from these measures. The more dependent they were, the harder they were hit.

And the same will be true in Argentina. The more dependent people are on the government subsidies and programs, the more painful Milei’s austerity measures will hurt. Greece didn’t institute those measures out of principle or democratic will. Greece did it because it was desperate to be bailed out.

Therein lies a critical difference. Milei was voted in. There was a surge of people who had the will to foist him into office. And while he’ll be up against the legislature, he appears vocal enough to let people know who’s blocking progress.

Politics in general are becoming far more contentious, and protests are becoming more strident as people begin to lose faith in the whole democratic process. In the US especially, the people are waking up to the fact that they were lied to or at the very least misled about the pandemic, about its interventionism, about other politicians.

States in the US are removing former President Donald Trump from the primary ballots on the grounds of “inciting an insurrection”, for which there is no legal basis upon which to justify it. Of all the indictments, Trump was never charged with insurrection.

It is overt election tampering in the name of “saving democracy”. Alan Dershowitz is a life-long democrat who was a Constitutional professor at Harvard, and he observed that democracy means he has as much right to vote FOR someone as he does AGAINST them. Removing someone from the ballot, on unfounded pretenses, is not democratic.

Here’s the thing. The US is not looking too sharp right now. A LOT of smoke and mirrors to keep the word “recession” and “depression” OUT of the media at all costs. And we will see what those costs look like soon enough.

Banks aren’t seeing deposits:

But lending is up. So people aren’t putting their money away, but they are taking out lines of credit. So where do these banks turn to for help? A little thing the Federal Reserve created called the BTFP or Bank Term Funding Program:

The Bank Term Funding Program (BTFP) was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors… The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

It’s actually a very fluffy description of a bank bailout program which started in March 2023 and is set to shut down in March 2024. Among other structures, banks are desperate:

With customer deposits growing scarce, U.S. banks are instead relying on emergency funding lines from the Federal Reserve Banks and the Federal Home Loan Bank (FHLB) system. FHLB bond capital raising, of which the proceeds are used to fund the banks, is up 89 percent year over year through November and looks set to reach $1.1 trillion for 2023. Use of the Bank Term Funding Program, the emergency line put in place by the Fed in March 2023, reached an all-time high last week at $131.3 billion.

Much like Greece and Argentina, the more dependent you are on the government the more it’s going to hurt when the program gets pulled. So what happens when the faucet is turned off?

[T]here is another pent-up insolvency brewing – especially if The Fed proceeds with terminating its BTFP bailout fund (which is now spewing free money to banks via arbitraging The Fed’s own various facilities) and reverse repo usage (a source of liquidity) falls to zero.

When you start cutting programs, people get angry. And the US has that to look forward to among the rest of its social unrest. Who knows what will happen come March 2024? With so much dependency on the free money, you can bet things are going to get very spicy.

I’ll be watching Argentina. Their correction is going to be painful at first. The US can expect their correction to be equally so if not worse. This is what the US is charging into in 2024!

Click here to get a copy of our offshore banking report, or here to become a member of our Insider program, where you are eligible for free consultations, deep discounts on corporate and trust services, plus a host of information about internationalizing your business, wealth and life.