During the emerging markets commodity boom a few years ago, the Chilean Finance Minister Andres Velasco threw a wet blanket on the party.  Chile is the world’s largest copper producer in the world.  So as their country was reaping the benefit from copper, prices quadrupled. He set aside a huge chunk of the profits, $20 billion into a rainy day fund.  The total was more than 15% of the economic output of the GDP of Chile.

Needless to say many attempted to get him to crack open the vault and spend the money, staged protests and stormed in on his meetings.  Wary that putting all that money into the economy would create all sorts of bubbles in the economy when copper prices tanked (and they did) he kept the cash safe.

Today Mr. Velasco looks like the smartest guy in the world.  Copper price fell 50%.  Argentina is facing default while oil rich Russia is now having to bailout its own banks.  Meanwhile Chile has not spent one peso on ANY government bailouts or borrowed any money.  Matter of fact Moody’s Investor just upgraded them in the ratings.

Today Chile is taking its copper money and sinking it into their own country and creating jobs, a massive stimulus plan and they are doing it without borrowing one cent!  Analyst are saying that Chile will have an annual economic decline of just 0.5%.  The Governments of Brazil and Mexico, so strapped in debt, are unable to help their own people and the standards of living in those countries are sinking to record lows.  In Chile the Government is handing out stipends to help those folks keep their children in schools.

How did Chile do this?  Mr. Velasco studied at Columbia University.  He pushed a law through requiring the annual budget to be based on a ten year copper average not just the current price.  Anything over the average went onto a rainy day fund.  So instead of spending everything in sight, he put away $20 billion just in case copper prices went down and the economy went south. 

Many where unhappy with his policies and student protested, bloggers mocked him, and great many speeches were made criticizing his policy.  The economic performance for the country was average and the economic output was only half of what it had been in the huge run ups in the early 2000’s.  Experts predict that Chile will have the mildest of recessions as Chile is pumping money into banks and investments to keep the country going.  All of the money was saved up in advance and they are being now being hailed as the standard on how to manage money.

Today Chileans are working and improving their country.  Contrast that to the United States.  We are borrowing, going into record debt, unemployment is closing in on 10%, and the Government it taking everything over.  How is it that one man in Chile saw this coming, did something about it, took the grief when the markets had a huge run up, and now looks like the Oracle from Nebraska himself?  He had the courage and foresight to know that nothing is forever and he saved during the good times knowing that we always have the bad times.

How I wish our politicians would have done the same.  When we had the chance to save up, they spent it all. It’s too late for all of us now.  We all should look at Chile as an example on how to do it and realize that we have to start doing this now or we will go through this again during the next business cycle.  Can politicians really save money?  If they can’t its time to vote some folks in that can and will.   I plan on bringing that philosophy to Congress next year.  I hope you will join me.

Paul Smith.  Republican Candidate for the 5^th Congressional District (Sacramento).

The Paul Smith for Congress website is www.paulsmithforcongress.org