In my previous piece on Milei[1] 18 days ago, I argued that the Milei administration is running a debt and inflation ponzi that is coming near its end, and that the only concrete achievement of his administration so far is that it destroyed the currency and created a shitcoin casino making bond and foreign exchange speculation the only path to financial security in Argentina. Since I wrote that piece:

-The Argentine peso is down another 10% against the US dollar, and has already breached the top of the band in which the Administration said it aims to keep the peso.[2]

-This decline in the peso comes in spite of Milei's administration officially announcing it is intervening in the foreign exchange market by buying pesos with the very few borrowed dollars it has. It's estimated they blew $540m just last week. This was all to keep the exchange rate relatively stable in anticipation of yesterday's election.[3]

-The Treasury managed to sell all of its most recent bond auction, but that came only after raising the annual rates to a 88%, and by imposing new higher reserve requirements on banks, which made them have to buy more bonds. As a result, Argentine banks's stocks on the NYSE crashed.[4]

-Argentine stocks and bonds also crashed hard.

-Milei and his sister are implicated in a massive corruption scandal involving taking kickbacks from contracts for drugs for the disabled.[5]

-Milei's party lost regional elections yesterday to the Peronists.

In conclusion:

For two years, this con artist has doubled or tripled most measures of money supply, enriched bond market speculators, and kept the carry trade ponzi going, draining the country of money, all under the pretext that this was necessary to prevent the Peronists from coming back to power. He still lost his election, and will likely lose the congressional elections next month, too. His hysterical antics won't be in power for long, but all the extra pesos he created and the debt he incurred, will haunt Argentinians for many years to come.

For the record: in the first 20 months since he took office the money supply measure have increased by: M0: 344% M1: 152% M2: 114% M3: 164%

I think at this point it is very important to understand the anatomy of the Bond market ponzi which Milei has used to destroy the currency and his bond market. So let us spend a few minutes seeing how the Argentina carry trade works, and why it is such a disaster, how it has been robbing Argentines of their precious wealth, and how it is impossible to sustain, and is likely on the verge of collapse.

Since Milei came into office in December 2023 and reneged on his promise to shut the central bank, he announced that the peso exchange rate would be allowed to decline against the US dollar at a controlled pace of 2% per month. In February 2025, this was reduced to 1% per month, and by the end of April 2025, the crawling peg was removed, and the government announced its intention to keep the peso trading in the range between 1000 and 1400 pesos per dollar.

In the bond market, the Argentine government was offering its bonds with absurdly high interest rates that exceed the rate of devaluation of the peso against the dollar. This creates a huge arbitrage opportunity. Any individual can now buy bonds and make a return that exceeds the devaluation of the peso. This is particularly tempting to people who have dollar savings. If the bonds are offering 5% a month, and the peso only devalues by 2% a month, then you are making a nice 3% per month return. This is what is called the carry trade, or in Argentina, la bicicleta financiera. A true ponzi scheme, la bicicleta is currently the most important industry in Argentina. If you’re riding la bicicleta in Argentina, your children go to bed well-fed every day. If you’re not riding it, they are highly likely to go to bed hungry.[6]

The bicicleta is obviously unsustainable, because as the government offers high yields on its bonds, it needs to create more pesos, which devalues the peso. It is impossible for this bicicleta to run forever, because it’s impossible for the government to keep offering yields that are higher than the devaluation of the currency, because the higher the yields, the more currency is created, and the more the currency will face pressure to decline. There must inevitably come a point at which the peso devalues significantly, at a rate exceeding the yield on the bonds. At that point, the bicicleta breaks down and the people riding it lose money. As soon as that happens, it becomes highly likely that the devaluation will increase, and that the bicicleta riders will leave, and there ensues a mass exodus from the bicicleta ponzi. The bicicleta riders dump government bonds and pesos, and instead seek safety in dollars, or if they’re smart, bitcoin. The peso collapses, the bonds collapse, and the government is left having to beg the IMF for a bailout.

This is a quintessential ponzi, because the early entrants into this scheme will benefit from it enormously, whereas the latecomers are far more likely to get burned. But more importantly, this entire abomination is completely unproductive parasitism that produces nothing of value to society. On the contrary, it produces something of negative value because it allows the government to continue to print money, roll over its debt, and continue to spend on all the stupid things on which governments spend their money.

There are probably currently $40b to $80b in peso government debt being rolled over with maturities under 1 year. This is likely a good estimate for the size of the carry trade, and it is probably the best explanation for why Argentina continues to be mired in inflation and endless fiscal and monetary crises. Tens of billions of dollars are not going to productive enterprises that make people’s lives better, and are instead being directed to this silly ponzi. Rather than hiring workers to produce goods that society values, so much of Argentina’s capital is going into this financial game of Russian roulette. If you manage to avoid the bullet of devaluation when your money is in the bonds, you profit; but when the inevitable collapse happens, you are ruined. It is a nationwide gambling scam, reshuffling wealth across society and rewarding some gamblers at the expense of others.

But this game of Russian roulette isn’t exactly random, and it is not just reshuffling money across Argentina. The government insiders who control the game and issue the bonds are better able to know when to play it, when to go in aggressively, and when to leave. The average person, particularly ones trying to be productive by having an actual job, are always going to be at a disadvantage, and much more likely to catch the bullet. The poor, who are unable to speculate on bonds and can only hold cash as savings, witness the value of their cash constantly decline. Thanks to the liberalization of capital flows, it is now possible for foreigners to enter the game. Indeed, JP Morgan, whose alumni have the most important jobs in the Milei administration, told its clients to enter the game in April, and at the end of June, it said that it was exiting this game. It’s estimated that they made a 64% annualized profit during these three months.[7]

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, and entering and exiting at the right time.

Overall, foreign investors must have taken out of the country billions of dollars from this trade, and that is entirely parasitic profit that offers nothing of value to the people of Argentina. One does not have to be a raging leftist to see this for the parasitic scam that it is. Foreign investment that provides capital for productive enterprise that produces goods valuable to the people of the country is very different from foreign “investment” that helps the government keep its ponzi going for a few more months.

The lucrative nature of the carry trade is the best explanation for why Milei kept it going after coming into office. The amount of dollars being made by playing this rigged game likely makes it the most profitable industry in Argentina. The people profiting from it are able to make more gains than practically every other industry in the country. If Milei shuts down the central bank and stops printing money to keep the bond ponzi going, the carry trade ends, and a lot of rich people need to start doing something productive instead. The carry trade is also lucrative for the government because it allows it to keep printing money and rolling over its debt. Milei proved to be no different from his predecessors by continuing this shell game of short-term profits for the few at the expense of the future of the entire country.

The exit of JP Morgan seems to be a significant turning point in the ponzi, and it likely helped precipitate the failed auction from 4 weeks ago, which now leaves the government in a serious bind. Whether through an understanding of the dynamics of the ponzi, or through its superior connections, JP Morgan now estimates that the risk of riding la bicicleta is not worth the return. With their money out of the country, and other investors likely paying attention to them, the game may well be up. In any case, it is only a matter of time, because it is simply impossible to keep rolling over debt at these exorbitant interest rates. There have been some carry trades in the past that were unwound with little damage, but these all happened when the arbitrage opportunity was in assets that offered moderate yields, well below 20%, such as Brazil in 2016-19, Czech Republic in 2013-17, Chile in 2010-12. In alle examples where the carry trade involved government bonds with high yields, the unwind was disastrous. In Russia in 1998, Argentina in 2001-2, Ecuador in 1999-2000, Ukraine in 2014-5, Sri Lanka in 2022, the governments defaulted, and the currencies lost more than 50% of their value, in the aftermath. It is just not possible to keep rolling over high interest rate debt forever without destroying the currency.

When Austrian economists criticize Milei for not closing the central bank, we are not doing it because we are being dogmatic puritans, and we are not doing it because we do not understand the political and economic realities of the situation, as many of his moronic sycophants insist. On the contrary, it’s precisely when you understand the depravity of the scam that you realize the continuation of the central bank means the continuation of the carry trade, and the continuous bleeding of capital from the country, and the devastating misdirection of the time and talent of the country toward a completely unproductive casino instead of productive enterprise, one that is unsustainable and bound to explode with devastating consequences. The longer it goes on, the more harmful it will be. It isn’t idealism to want the ponzi stopped; it is practical material necessity. It is not idealism to want to shut down the central bank; it is delusional idealism to expect this central bank to operate in a way that benefits society when it is only able to survive by running this massively destructive ponzi.

Given the level of corruption Milei displayed in the Libra shitcoin scandal and in the disability drug contracts, is it really so far fetched to imagine that his entire libertarian act has just been a convenient ruse with which to keep the carry trade going to the benefit of his cronies?