ECONOMIC ITCH
line in Argentina,” warned a Financial Times headline in May 2019. Compared with other countries, Argentina’s debt burden – at around a forecast 100% of GDP now – isn’t so bad on the surface. But unlike the U.S. (debt-to-GDP ratio of 118%) or Japan (the world record holder, at 238%), Argentina can’t just print money (or sell bonds) to pay off its enablers. It needs hard currency, which is a lot more difficult to come by. As Argentina’s economy continued to stumble, so did Macri’s re-election prospects. With inflation at 55%, and one-third of the population in poverty, prospects were dimming. That Macri called in the IMF – an institution about as hated in Argentina as Congress, the DMV, and the TSA put together in the U.S. – made it all the worse. Macri lost a preliminary election in August, which makes it almost certain he’ll be kicked out of the Casa Rosada, Argentina’s White (pink, actually) House, in a late October election. He’s likely going to be replaced by a team that includes vice president Cristina Fernández de Kirchner – who, as president from 2007 to 2015, created the mess that Macri was trying to fix. The IMF, and bondholders, will have to negotiate in part with her to get its money back. That will be difficult. In late August, the Argentine government announced a “re- profiling” of its debt... which is default by another name. Argentina’s bonds are trading at close to the same levels as 2001 – after Argentina defaulted in what at the time was the biggest sovereign debt blowup in history.
POSTSCRIPT: BLAME, ANYONE? In 2012, a credit derivatives trader at JPMorgan, one of the world’s biggest banks, lost $6.3 billion. People exercised bad judgment, laws were broken, the bank lost a lot of money, and there were consequences for the “London Whale” trader... JPMorgan paid a fine of $1 billion for violating securities laws, CEO Jamie Dimon had his 2012 pay cut in half, a U.S. Senate subcommittee accused the bank of misleading investors and dodging regulators, and some traders faced criminal charges. Needless to say – we’re talking about government work here, after all – the repercussions of an IMF loan nearly 10 times bigger going south in less than two years haven’t been quite as severe. In fact, the person ultimately responsible for the loan, IMF head Lagarde, isn’t even suffering the blowback... because now she’s the head of the European Central Bank. That’s right: The top manager who oversaw a catastrophically bad loan upon which the credibility of the IMF supposedly depended... is now head of an institution many times bigger, more important, and more powerful than the IMF. That’s a little bit like Jamie Dimon personally making the disastrous London Whale trades himself, and losing nearly 10 times as much... And for his trouble, then being promoted to be the Grand Poobah, the King and Master of All Banks of America. Meanwhile, Argentina, and its 44 million residents, are going through withdrawal...
American Consequences
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