Tuesday, September 23, 2014


From a relative non-sophisticate, I am beginning to wonder when the smaller economies are going to start thinking about the idea of large-scale defaults?

Right now, everyone is tied into the basic concept that growth is required and the only way to achieve growth is the unfettered access to western capital flows.  Well, what happens in these smaller economies when the ruling class takes a hard look at the amount of money flowing out of their country to western banks and investors and decide to just say "screw it"?

We can talk about the banks having people by the short and curlies, but the truth of the matter is, once folks decide that paying a huge portion of their limited national income to western banks in order to preserve the right to borrow even more is a losers game.

Argentina has defaulted and will default again.  There are a lot of countries out there that will start realizing soon that the US and NATO militaries cannot enforce payment everywhere all the time. The truth of the matter is, multiple countries defaulting will probably end up in a system of economic flows not transiting New York for their skim of the vig.

It is going to end up there eventually.  One would hope that it begins soon.

1 comment:

russell1200 said...

Look into what happened when the Soviets/Russians cut Cuba off from their free oil in 1989 as the Soviet Union was collapsing.

That is what can happen to a country that looses a "free" input. In the case of the loans, you of course get caught with balancing the cost of the loans with the need for cash for more inputs.

The IMF gets beat up for telling people to stop spending more than they take in and to balance their import/exports, because the "strategy never works" Which is more like saying that living life within your means is not a lot of fun. And is definitely a regime changing issue.

Unlike a lot of other countries, Argentina has a lot of exports. A very different beast than most 'small' countries. They tend to get into Dutch Disease territory (as did the Venezuelans) which hurt local commerce, and then compounded it by using the wealth of from exports as a socializing tool (free money) further reinforcing the stagnation.