Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Cry for Argentina: Fiscal Mismanagement or Pillage?

Interest-Rates / Global Debt Crisis 2014 Aug 15, 2014 - 10:58 PM GMT

By: Ellen_Brown

Interest-Rates

Argentina has now taken the U.S. to The Hague for blocking the country’s 2005 settlement with the bulk of its creditors. The issue underscores the need for an international mechanism for nations to go bankrupt. Better yet would be a sustainable global monetary scheme that avoids the need for sovereign bankruptcy.


Argentina was the richest country in Latin America before decades of neoliberal and IMF-imposed economic policies drowned it in debt. A severe crisis in 2001 plunged it into the largest sovereign debt default in history. In 2005, it renegotiated its debt with most of its creditors at a 70% “haircut.” But the opportunist “vulture funds,” which had bought Argentine debt at distressed prices, held out for 100 cents on the dollar.

Paul Singer’s Elliott Management has spent over a decade aggressively trying to force Argentina to pay down nearly $1.3 billion in sovereign debt. Elliott would get about $300 million for bonds that Argentina claims it picked up for $48 million. Where most creditors have accepted payment at a 70% loss, Elliott Management would thus get a 600% return.

In June 2014, the U.S. Supreme Court declined to hear an appeal of a New York court’s order blocking payment to the other creditors until the vulture funds had been paid. That action propelled Argentina into default for the second time in this century—and the eighth time since 1827. On August 7, 2014, Argentina asked the International Court of Justice in the Hague to take action against the United States over the dispute.

Who is at fault? The global financial press blames Argentina’s own fiscal mismanagement, but Argentina maintains that it is willing and able to pay its other creditors. The fault lies rather with the vulture funds and the US court system, which insist on an extortionate payout even if it means jeopardizing the international resolution mechanism for insolvent countries. If creditors know that a few holdout vultures can trigger a default, they are unlikely to settle with other insolvent nations in the future.

Blame has also been laid at the feet of the IMF and the international banking system for failing to come up with a fair resolution mechanism for countries that go bankrupt. And at a more fundamental level, blame lies with a global debt-based monetary scheme that forces bankruptcy on some nations as a mathematical necessity. As in a game of musical chairs, some players must default.

Most money today comes into circulation in the form of bank credit or debt. Debt at interest always grows faster than the money supply, since more is always owed back than was created in the original loan. There is never enough money to go around without adding to the debt burden. As economist Michael Hudson points out, the debt overhang grows exponentially until it becomes impossible to repay. The country is then forced to default.

Fiscal Mismanagement or Odious Debt?

Besides impossibility of performance, there is another defense Argentina could raise in international court – that of “odious debt.” Also known as illegitimate debt, this legal theory holds that national debt incurred by a regime for purposes that do not serve the best interests of the nation should not be enforceable.

The defense has been used successfully by a number of countries, including Ecuador in December 2008, when President Rafael Correa declared that its debt had been contracted by corrupt and despotic prior regimes. The odious-debt defense allowed Ecuador to reduce the sum owed by 70%. 

In a compelling article in Global Research in November 2006, Adrian Salbuchi made a similar case for Argentina. He traced the country’s problems back to 1976, when its foreign debt was just under US$6 billion and represented only a small portion of the country’s GDP. In that year:

An illegal and de facto military-civilian regime ousted the constitutionally elected government of president María Isabel Martínez de Perón [and] named as economy minister, José Martinez de Hoz, who had close ties with, and the respect of, powerful international private banking interests. With the Junta’s full backing, he systematically implemented a series of highly destructive, speculative, illegitimate – even illegal – economic and financial policies and legislation, which increased Public Debt almost eightfold to US$ 46 billion in a few short years. This intimately tied-in to the interests of major international banking and oil circles which, at that time, needed to urgently re-cycle huge volumes of “Petrodollars” generated by the 1973 and 1979 Oil Crises. Those capital in-flows were not invested in industrial production or infrastructure, but rather were used to fuel speculation in local financial markets by local and international banks and traders who were able to take advantage of very high local interest rates in Argentine Pesos tied to stable and unrealistic medium-term US Dollar exchange rates.

Salbuchi detailed Argentina’s fall from there into what became a $200 billion debt trap. Large tranches of this debt, he maintained, were “odious debt” and should not have to be paid:

Making the Argentine State – i.e., the people of Argentina – weather the full brunt of this storm is tantamount to financial genocide and terrorism. . . . The people of Argentina are presently undergoing severe hardship with over 50% of the population submerged in poverty . . . . Basic universal law gives the Argentine people the right to legitimately defend their interests against the various multinational and supranational players which, abusing the huge power that they wield, directly and/or indirectly imposed complex actions and strategies leading to the Public Debt problem.

Of President Nestor Kirchner’s surprise 2006 payment of the full $10 billion owed to the IMF, Salbuchi wrote cynically:

This key institution was instrumental in promoting and auditing the macroeconomic policies of the Argentine Government for decades. . . . Many analysts consider that . . . the IMF was to Argentina what Arthur Andersen was to Enron, the difference being that Andersen was dissolved and closed down, whilst the IMF continues preaching its misconceived doctrines and exerts leverage. . . . [T]he IMF’s primary purpose is to exert political pressure on indebted governments, acting as a veritable coercing agency on behalf of major international banks.

Sovereign Bankruptcy and the “Global Economic Reset”

Needless to say, the IMF was not closed down. Rather, it has gone on to become the international regulator of sovereign debt, which has reached crisis levels globally. Total debt, public and private, has grown by over 40% since 2007, to $100 trillion. The US national debt alone has grown from $10 trillion in 2008 to over $17.6 trillion today.

At the World Economic Forum in Davos in January 2014, IMF Managing Director Christine Lagarde spoke of the need for a global economic “reset.”  National debts have to be “reset” or “readjusted” periodically so that creditors can keep collecting on their exponentially growing interest claims, in a global financial scheme based on credit created privately by banks and lent at interest. More interest-bearing debt must continually be incurred, until debt overwhelms the system and it again needs to be reset to keep the usury game going. 

Sovereign debt (or national) in particular needs periodic “resets,” because unlike for individuals and corporations, there is no legal mechanism for countries to go bankrupt. Individuals and corporations have assets that can be liquidated by a bankruptcy court and distributed equitably to creditors. But countries cannot be liquidated and sold off – except by IMF-style “structural readjustment,” which can force the sale of national assets at fire sale prices.

A Sovereign Debt Restructuring Mechanism (SDRM) was proposed by the IMF in the early 2000s, but it was quickly killed by Wall Street and the U.S. Treasury. The IMF is working on a new version of the SDRM, but critics say it could be more destabilizing than the earlier version.

Meanwhile, the IMF has backed collective action clauses (CACs) designed to allow a country to negotiate with most of its creditors in a way that generally brings all of them into the net. But CACs can be challenged, and that is what happened in the case of the latest Argentine bankruptcy. According to Harvard Professor Jeffrey Frankel:

[T]he US court rulings’ indulgence of a parochial instinct to enforce written contracts will undermine the possibility of negotiated restructuring in future debt crises.

We are back, he says, to square one.

Better than redesigning the sovereign bankruptcy mechanism might be to redesign the global monetary scheme in a way that avoids the continual need for a bankruptcy mechanism.  A government does not need to borrow its money supply from private banks that create it as credit on their books. A sovereign government can issue its own currency, debt-free. But that interesting topic must wait for a follow-up article. Stay tuned.

Ellen

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com and http://PublicBankingInstitute.org.   

© Copyright Ellen Brown 2014

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules