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Solutions for the World Economy

A Capitalist System with a Human Face

                                                                                                WE SHOULD HELP ARGENTINA

 Every year, we are giving China around $400 billion in the form of trade deficit. China is using hundreds of billions of dollars to improve its economy, its military, and to buy (loan-to-own) the whole world. Argentina became in effect one of the agricultural colonies of China, and China pays with dollars earned in America.
Recently, Javier Milei, the libertarian economist, became the president. His proposals include dollarising Argentina's economy and scrapping the central bank. If he manages to improve the economy, other countries of Latin America will follow Argentina's example. We have probably the last chance to save Latin America from becoming a Chinese backyard.
We must educate Latin America. At the present time, Latin America is exporting a lot of raw materials and agricultural goods to China, which has mountains of dollars because of our stupidity. The countries of Latin America exchange the dollars for local money. The purchasing power of local money is very weak, and here is why.
Suppose, people want to buy only two goods - housing and food. Suppose further that they can produce both goods themselves, and they don't need China. In this case, most people will be working to produce what they need, and not what China needs, and the living standards will be much higher. But now, when people want to buy housing, it is not affordable because instead of building housing people work for China.
No matter how much money the Latin American countries earn from exporting to China, the living standards will not increase because when real estate is too expensive, it makes many things not affordable. High prices of real estate are included in the prices to rent or buy housing, restaurants, child care centers, etc. The best thing the Latin America countries can do to increase living standards is to stop working for China. They should build modern new cities with modern public transportation where most people will not even own cars. They should use Modified Keynesian Theory to finance construction.
The first major task of Javier Milei, the new president, must be to explain to the citizens of Argentina a few things.
1. The country must produce what people need, and NOT what China needs. Increased supply of those goods will allow us to buy them.
Purchasing power of wages depends on the amount of supply. The more we produce, the more we consume. Exports to China should be low.
2. When Argentina starts using dollars instead of the peso, prices will depend mostly on the cost of production. It takes 10 workers to work one year to build one good apartment in a high-rise building. If workers are paid on average $1,000 per year, the cost of one apartment will be $10,000. If workers are paid on average $10,000 per year, the cost of one apartment will be $100,000. Higher nominal wages will not increase affordability. Only higher production will increase consumption.
3. Real estate developers will need to borrow billions of pesos (or dollars) from commercial banks. But commercial banks do not have enough reserves to make billion dollar construction loans to build even one modern city. The central bank must print pesos and make the construction loans. When the real estate is built and sold, the real estate developers will pay their debt to the central bank.
4. Buyers of apartments will need to borrow money from commercial banks. In the near few years Argentina will not have enough American dollars circulating in the country to generate enough bank credit for the economy. First, Argentina should build a  modern new city with industrial zones that will manufacture goods for export. In other words, American companies should relocate factories from China to Argentina. Argentina should start eating China's lunch. This is how America can help Argentina to dollarise its economy.  The full explanation of the Modified Keynesian Theory on this website

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