Argentina’s Financial Crisis Deepens as Economist Warns of Bond Ponzi Collapse

Argentina’s Bond Market Faces Collapse Amid Economic Turmoil

Saifedean Ammous, economist and author of The Bitcoin Standard, has issued a stark warning regarding Argentina’s financial system, describing it as a “debt and inflation Ponzi” sustained by unsustainable bond yields and excessive money printing. Ammous criticized President Javier Milei’s economic policies, asserting that they have decimated the national currency and turned the bond market into a speculative “shitcoin casino.”

High-Yield Carry Trade Fuels Crisis

Central to the crisis is the phenomenon known locally as la bicicleta financiera, a carry trade where investors purchase short-term government bonds offering interest rates surpassing the rate of peso devaluation. Ammous characterizes this mechanism as a classic Ponzi scheme, pointing out its inherent instability: to pay high yields, the government must issue more pesos, which in turn devalues the currency further.

“It is impossible for this bicicleta to run forever,” Ammous emphasized, highlighting the unsustainable nature of the current financial model.

Peso Devaluation and Market Fallout

Despite interventions amounting to $540 million in foreign exchange reserves, the peso has breached its target exchange band. Bond yields have soared to 88%, while Argentine equities and bonds have suffered sharp declines. Concurrently, Milei’s government faces allegations of corruption and has experienced setbacks in recent elections.

Ammous warned that when peso devaluation exceeds bond yields, investors are likely to abandon both bonds and the peso, precipitating a flight to perceived safe havens such as the US dollar and Bitcoin.

Economic Drain and Insider Profits

The economist estimates that the carry trade involves between $40 billion and $80 billion in short-term debt, diverting capital from productive economic activities. He also noted that foreign institutions, including JPMorgan, have capitalized on the scheme by strategically timing their market participation.

“Random bankers from all over the world managed to outperform the vast majority of stocks and traders worldwide by simply playing this rigged game of Russian roulette,” Ammous remarked.

Political and Ethical Controversies

Ammous criticized Milei’s reluctance to close Argentina’s central bank, suggesting that the libertarian rhetoric is superficial and that prolonging the Ponzi scheme will exacerbate economic harm. “It isn’t idealism to want the Ponzi stopped; it is practical material necessity,” he stated.

President Milei has also been embroiled in controversy following his endorsement of the Libra (LIBRA) memecoin in February, which saw a rapid surge to a $4 billion market cap before crashing by 94%. The incident resulted in significant investor losses and calls for Milei’s impeachment. However, Argentina’s Anti-Corruption Office later cleared Milei of ethics violations, ruling that his promotion of the token was conducted via his personal social media account and did not breach official conduct codes.