Sunday, January 3, 2010
Argentina Shows America How
"Argentina's government said it will set aside a portion of the central bank's foreign-currency reserves into a fund dedicated to debt service, in an effort to allay investor concerns about the country once again defaulting. ... But some economists said the creation of the fund raises longer-term questions about the Argentine government's commitments to control spending, which has been growing at a worrisome rate. ... Gabriel Torres, an economist at Moody's Investors Service ... said the debt bill is less onerous than it seems because much of the debt is held by Argentine government pension funds, banks, and other institutions that would surely roll it over. Nevertheless, Argentina's track record makes it risky. In 2001, Argentina declared the largest sovereign-debt default in history on about $100 billion in debt. ... 'Foreign-exchange reserves are to buffer you against all kinds of external shocks,' said Simon Johnson, a professor at the Massachusetts Institute of Technology and former IMF chief economist. Mr. Johnson said using some of the reserves to pay down debt could help shore up confidence in the Argentine market as some investors get unsettled about countries with big fiscal imbalances. ... Longer term, however, economists raised concerns over whether the Kirchner government was using the central-bank resources to avoid dealing with a growing fiscal problem", my emphasis, Matt Moffett and Matthew Cowley at the WSJ, 15 December 2009, link: http://online.wsj.com/article/SB126084511452791541.html.
Old South (OS), 10 November 2009, asks of Argentina's "plan to issue NEW sovereign debt", do the "money managers out there planning to buy in ... know, when push comes to shove, they can now dump the resultant losses on the US Treasury and taxpayer", link: http://mainstreetmattersmore.blogspot.com/2009/11/proof-positive-theres-one-born-every.html.
What distinguishes America's financial position from Argentina's: the US dollar is the world's reserve currency. For now. Set aside? Like the "social security lockbox"? This is accounting nonsense like "appropriated retained earnings". Argentina's supposed sinking fund lacks economic significance. I don't doubt Argentina's willingness to reduce spending. It won't. Moody's must be staffed with fools. Disagreeing with Torres, it doesn't matter who holds Argentina's debt. Who holds it governs who will lose when Argentina next defaults. Why should who holds Argentina's debt affect its value? Does who holds XOM affect its value? Disagreeing with Johnson, how can Argentina pay down debt net, without reducing spending? Argentina's actions are part of a continuing con game. Does the US have a big fiscal imbalance? Why are 30-year US Treasuries yielding 4.45%? Is Uncle Sam using Zimbabwe Ben to "avoid dealing with a growing fiscal problem"?
OS raises a good point. Did Argentina "clear" its proposed bond issues with His Obamaness? Will Argentina become the new Citigroup, with its hand continually in the taxpayers' pocket?