Wednesday, January 21, 2009
"One of the questions concerning Latin America in 2009 is whether or not the region will be plunged into yet another dismal round of debt defaults as commodity prices stay low and foreign capital inflows frozen solid. ... In the context of a region that gave birth to the term 'serial defaulter,' Ecuador's mid-December decision to default on its bonded debt is an alarming development. ... Tempting as it is to forget about Ecuador, what happens next there matters a lot for Latin America and for the world. Why? First, dollarized Ecuador really has managed to get its political and economic act more or less together in recent years, say what you will about President [Rafael] Correra. Second, the financial pressures that comprise the default backdrop in Ecuador are similar throughout Latin America. Every Latin American country faces tough choices. ... We should not look upon the drama in Ecuador as a morality play. ... Putting moral considerations aside, this is about how the global credit crunch is harming commodity-addicted and foreign capital-dependent economies of Latin America. ... Now add to this toxic mix a panicky run of deposits in the banking system and a scenario suddenly appears of an abandonment of dollarization followed by furious running of the printing presses to produce massive amounts of a new domestic currency", my emphasis, Thomas Trebat (TT), 12 January 2009 at http://www.rgemonitor.com/latam-monitor/255019/the_curious_case_of_ecuadors_default_and_why_it_matters.
TT is a Columbia professor. What did Nixon do in 1971 when he "closed the gold window"? How different was that from Ecuador's ending dollar convertibiity? See my 1 November 2007 post. The US faces "tough choices" too. Save the banks, raise commodity prices! What is Zimbabwe Ben doing, if not creating "massive amounts of a ... domestic currency"?