Argentina Going Bankrupt?

Greeves & Roethler, PLC

Currently Argentina is in default on its loans. This does not mean that Argentina is going to go bankrupt, but rather that Argentina has not paid its loans. It is still possible for Argentina to not have to inflate its way out of debt, which is how Argentina has cleared its debts in the past or to find other investors willing to be Argentina’s white knight and pull them out of debt with a large cash infusion. This really seems unlikely, considering that during the previous default they badly abused investors that attempted this, who are some of the investors causing this default.

It is interesting to look at the effect of governmental manipulation of currencies. In Argentina’s case it is leading on a path to bankruptcy, due to failing to manipulate the currency “properly.” Properly meaning the Keynesian role of government to flood or restrict the markets with currency in order to soften the blows of economic events.  Argentina is failing its role and will now, most likely, have to inflate it’s way out of debt to avoid bankruptcy.

How does this effect the general population?

This harms the general public badly because Argentina’s bankruptcy would causes a dramatic decline in the value of people’s savings, and causes asset prices to inflate, making it hard to buy assets. It is possible that it would be as bad as what happened in Germany in the early 20th century with people using wheelbarrows full of worthless paper money to buy bread.

How is the general population reacting?

I recently spoke with a CEO of a Bitcoin company.  He informed me that Bitcoin is very popular in Argentina.  When I asked him why, he told me that the general populace is concerned with the corruption and the poor economic policies of the government.  They are desperately seeking a non-regulated, government free currency and are flocking to the crypto-currencies like Bitcoin.  They are fleeing there because these types of currency, while potentially vulnerable to manipulation by hackers (like we saw with Mt. Gox), are not vulnerable to manipulation by political entities or any other form of corruption, like graft and political extortion.

This means that the people of Argentina are creating their own currency with an international money, that cannot be manipulated.  This is a wholly rational thing for the people of Argentina to do, particularly since this is an appreciating currency, when compared to the Argentinian Peso, which is depreciating.

All in all, the big winner in this is going to be the crypto-currencies and the Argentinian people, who will have a secondary money, that is mostly anonymous to move around their government’s broken fiscal policy, and to not experience it again in the future.

 

 

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