Do they take notice ?

Thespoofer

Mods, Please move to Irish Economy, Thanks.


Hi

After having a look at David McWilliams' article on Iceland in todays Independent and another couple of reports by said individual ( Argentina post Default ) and other ' limelight economists ' as some like to refer to them as, I find myself asking, 'Does anyone in government actually read reports like the above and take serious consideration of the content in each and contemplate that
'Hey, maybe we can take a similar route'' ?

I guess what I'm trying to say is it would be such a breath of fresh air if we/I knew that they were willing to think outside the box on these matters or are they so focused on the current Austerity measures that no amount of reports would turn there heads ?

later12

http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-there-is-life-after-default-take-a-look-at-argentina-2662545.html

Here is one of the culprits referenced in the OPs post.

First of all, that is not an article that has any basis in economics, finance theory, nor economic history. It is a wee story by David McWilliams about his day at a football match, out of which (presumably) we are supposed to find a deep and enduring answer to the greatest economic question our country has faced in its history. The true answer to our problems needs to be concrete, take account of all possibilities and base its reasoning on available data from other jurisdictions - particularly Latin America.

When you posed your opening question - do they take notice? - I presumed you were referring to politicians and whether or not they take notice of the wealth of information that exists out in the ether with respect to previous sovereign debt, currency and banking crises, and eventual restructuring processes. Having read that article by David McWilliams, I now find myself asking whether he has bothered to make himself aware of these studies. Because McWilliams is a bright chap and is perfectly qualified enough to call himself an economist, one who apparently worked for a Europeaan bank on the last big Latin crisis, I am sure that he is all too familiar with these studies, and the awful truths about restructuring. He is presuming, however, that you have not.

First of all, Argentina is a terrible example. If you want to pick a jurisdiction that has at least some sense in its restructuring, look at neighbouring Uruguay. Anyway, lets ignore the useful examples and go down the Argentina route.

When an economist speaks of an economic crisis, he is speaking of either (1)external default, (2) domestic default, (3) currency crisis, (4) banking crisis or (5) inflation crisis. Largely because of how it defaulted, Argentina suffered every one of these things.

Prior to June 2001 (the first restructuring in that period) Argentina only had two crises out of five - sovereign and banking (although banking is questionable). At the turn of the year, Argentina had a full house and the banking crisis became very critical. It was as a direct result of the deleterious policies pursued by the Argentines between June 2001 and January 2002 that this happened.

In January 2002 the external interest rate spread over US Treasuries had gone from 10% to an enormous 50%. A series of corralito were enforced - ask any Argentine adult about these, they will remember - including a situation whereby suspension of convertibility was introduced. You literally could not access your cash.

The devaluation of which McWilliams speaks so highly meant that debt (which had long been denominated in US dollars) was now far more difficult for Argentines to contain and service than ever. The banks tried to deal with this situation by ‘asymmetric pesoization’ which ended up costing them billions directly through law suits, and billions more in reputational damage. Bank credit to the private sector dried up overnight, causing an economic negative feedback loop.

The default process was not resolved in Argentina until Summer 2005. True, its restructured bonds started trading in the grey market and while it has still not fully remerged into the markets, it has partially returned and can now access money, at least. But a lot of this is down to the nature of Argentina as a major economic player in the South American economy. Ecuador, which followed a similarly stupid path, has mainly been cut off from the capital markets since its default in 1999.

Argentina, ten years on, has still not fully recovered from all of this. I am not saying that we would suffer the same effects, I am not saying that we would, necessarily, spend a decade out in the cold. However, I am saying that David McWilliams has written an inaccurate, warm and fuzzy article on defaulting that has no sound economic basis and is largely built on the assurance that most of his readership will just swallow the lot and not bother to question the rubbish that he has come out with.

I am not 100% opposed to a restructuring - should the need actually arise. However, I would not be looking to Argentina as an ecample to follow were we to eventually go down the default street.

Just one more point from David McWilliams

the default happened in December 2002

No it did not. Initial restructuring occured in Summer 2001 and the announcement of a serious/ hard default was December 2001 and early January 2002. By December 2002 the default was having its first birthday. If he is going to put forward silly claims he should at least get the most basic facts correct.

Dannyboy83

Do they take notice?
No. They do what is politically expedient.

Fine Gael lied through their teeth to get into power.
They said they would reform the grossly obese Irish State sector.
Instead they are going to tax us into oblivion.
We will default.

That's about all you need to know.
Stuff like David McWilliam's articles is just mental chewing gum really.

Red Actor

I seem to remember a fuss over Brian Lenihan R.I.P. visiting D McW around the time of the bank guarantee. THis is evidence to me that notice is taken. Notice is also taken of other information/advice and decisions are made. If forecasting was an exact science then the likes of Gurdiev et al who profess how simple all this forecasting is should be millionaires from their insights into markets. I wonder why they are still working in academia.

Count Dooku

later10 wrote: »

Argentina, ten years on, has still not fully recovered from all of this. I am not saying that we would suffer the same effects, I am not saying that we would, necessarily, spend a decade out in the cold.

http://www.reuters.com/article/2011/03/28/us-latam-summit-argentina-idUSTRE72R1XD20110328

(Reuters) - Argentina's economy expanded by a blistering 9.2 percent last year, driven by strong consumer spending, high global prices for its grains exports and growing demand for manufactured goods in neighboring Brazil.

the only problem is that government led by left wing populist started to increase spending again in order to buy more votes

Public spending increased 30 percent last year and shows little sign of slowing seven months from an October presidential election in which Fernandez is widely expected to seek a second term.

Fernandez has announced increases to pensions and child welfare benefits, measures that could help bolster her support among the poor and stave off the impact of accelerating inflation on purchasing power.

Many public services, such as transport and utilities, have been heavily subsidized for years and the cost of subsidizing energy has become an increasing burden due to soaring domestic demand.

By signing a decree to tap another $7.5 billion from central bank reserves to repay private creditors, Fernandez will be able to maintain high public spending levels.

later12

Count Dooku wrote: »

http://www.reuters.com/article/2011/03/28/us-latam-summit-argentina-idUSTRE72R1XD20110328

the only problem is that government led by left wing populist started to increase spending again in order to buy more votes

The only problem? Are you for real? Did you just google Argentina five minutes ago?

Argentina has still not fully returned to the capital markets, it still owes billions of dollars in unresolved debts, and although it has gone back into growth, the crisis has never been fully resolved there. The Argentine economy is still unstable. What's even more laughable about the whole situation, is that Argentina is an economic powerhouse, resource rich, and had the option of devaluation. And even despite those things (which we do not enjoy) they are still struggling to resolve the fallout from their sovereign default. We would more likely face the difficulties faced by, say, Ecuador.

http://online.wsj.com/article/BT-CO-20110531-715843.html

Count Dooku

later10 wrote: »

Argentina has still not fully returned to the capital markets, it still owes billions of dollars in unresolved debts, and although it has gone back into growth, the crisis has never been fully resolved there.

The only problem is that left wing populists are not able buy votes by borrowed money

later10 wrote: »

The Argentine economy is still unstable.

It is more stable then Irish, which fully depends from capital markets

later10 wrote: »

What's even more laughable about the whole situation, is that Argentina is an economic powerhouse, resource rich, and had the option of devaluation.

If you want to discuss powerhouse, then you should look on Russia, which successfully defaulted on private debt of banks, renegotiated state debt and returned to markets before prices for oil and gas started to grow

Dannyboy83

later10 wrote: »

Argentina, ten years on, has still not fully recovered from all of this. I am not saying that we would suffer the same effects, I am not saying that we would, necessarily, spend a decade out in the cold.

The question I'm interested in is - If they had not defaulted, how long would their recovery have taken?

10 years on and not recovered doesn't sound great.
In comparison to 30yrs on and not recovered tho, it sounds preferable.

Atilathehun

There is a strong case for David McWilliams to be interned in the Curragh camp, till all this is over.:o He is definitely drinking too much Bulmers these days.
Constant simple minded equating Ireland with Iceland and Argentina, is nuts, pure unadulterated nuts.

later12

Count Dooku wrote: »

The only problem is that left wing populists are not able buy votes by borrowed money

Then why are so many left wing populists still accessing the bond markets? Seems sort of strange that Argentina should be the only one: cannot think of any other reason???

It is more stable then Irish, which fully depends from capital markets

We do not depend on capital markets.

If you want to discuss powerhouse, then you should look on Russia, which successfully defaulted on private debt of banks, renegotiated state debt and returned to markets before prices for oil and gas started to grow

Yes... Russia is a powerhouse, well done. That was my point about Argentina.

Ireland is not an economic powerhouse.

later12

Dannyboy83 wrote: »

The question I'm interested in is - If they had not defaulted, how long would their recovery have taken?

10 years on and not recovered doesn't sound great.
In comparison to 30yrs on and not recovered tho, it sounds preferable.

We cannot completely prove an alternative hypothesis. But we can look at how other economies in the region chose to default - or look at Argentinas previous defaults - and compare how the markets reacted. Argentina had defaulted previously in a much friendlier way, and was back accessing credit in a relatively short period. The same goes for many other Latin Americans throughout their debt crisis (see Brady bonds, Latin American debt crisis)

Count Dooku

later10 wrote: »

We do not depend on capital markets.

If we don't depend, then why we should borrow?


BTW

The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.

Karl Marx.
Capital
Volume One
Chapter Thirty-One: Genesis of the Industrial Capitalist

Dannyboy83

later10 wrote: »

We cannot completely prove an alternative hypothesis.

Certainly.
Any rough figures tho?
Just looking for an educated guesstimate.

later12

Count Dooku wrote: »

If we don't depend, then why we should borrow?

I said we are not dependant - i.e. in the present tense. Presently, we depend on EFSF and EFSM borrowing guaranteed by EU and Eurozone member states, as well as bilateral aid. I think most Irish people and anybody who wants to see an economic recovery is positively pining for the day when Ireland has an option of re-access.

As for Karl Marx, sorry: I am not getting into a debate on Marx. The only book I have on Marx is wedging up a broken radiator in my bedroom, and it is staying there. Marx can do something useful for once.

later12

Dannyboy83 wrote: »

Certainly.
Any rough figures tho?
Just looking for an educated guesstimate.

Very rough figures... and qualifying it by saying that it depends on the size and nature of the default/ restructuring - well, Gelos (2004) found that it could only take as little as a few months to regain market access for defaulters. There is no reason why Argentina could not - potentially - do that, whereas in reality access to the grey market took them a lot longer. They have now secured access, but are still not fully back.

beeftotheheels

http://www.bbc.co.uk/news/business-13940018

The BBC seems to have found a different Argentina to the one McWilliams visited which they are comparing to Greece here.