This is the Times saying that Greece shouldn’t default because that would mean foreigners and overseas banks would lose a good chunk of their investments. Well, no kiddin’! That’s the whole point. Scott Talbott might get red in the face making that argument.
But the bafflement continues here. The gist of the Times’s piece is that Greece shouldn’t default because then it won’t be able to borrow more money.
For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.”
Krugman nails that quote there, asking “shouldn’t that be a Serious country?” Indeed. But why does the Times think Argentina needs to be back in the global credit market? It’s grown at 8 percent a year for eight years without being in the global credit market!
Of course, Greece is a different country than Argentina. It has different circumstances, including membership in the euro, which it would have to quit in order to do the devaluation it needs to recover (it also has a vastly higher debt-to-GDP ratio). But the Times does a remarkably poor job here of showing how the lessons of Argentina’s default might apply to Greece.
From what I can tell the main one is: Go for it.
And while this is an unfortunately sharp departure from the Times’s normal standards, it’s nice to see that Krugman feels free to take on his own paper. I understand Krugman is untouchable, but it’s still a healthy thing.
Argentina's GDP "growth", and the relationship it has with its 2001 default, looks good only if you believe they are being strait with thier inlfation reporting (hint: lots of people dont believe it) and barring that, thier GDP per capita growth over the past decade makes Krugman's chart even less impressive.
http://www.wbur.org/npr/112014811/argentina-accused-of-economic-tall-tales
But you two are entitled to yuor fantasies.
#1 Posted by Mike H, CJR on Fri 24 Jun 2011 at 04:00 PM
Haters gonna hate!
Good article.
#2 Posted by ernestoandres, CJR on Sat 25 Jun 2011 at 07:31 AM
First off, Juan Forero's reporting leaves a lot to be desired in my experience. What the guy is quick to condemn in Venezuela, he''s quick to excuse in Colombia. He also tends to be a little sloppy when it comes to producing the evidence used to justify his headlines.
Second, there have been two types of inflation going on in Argentina.
There was the devalued currency after the default, which lead to both a competitive labor force and a reduction in the value of debts accumulated in Argentinean pesos. The cheaper labor force created opportunities for Argentinean businesses in the South American market and the devalued debts stopped the deleveraging process from becoming a drag on the economy. Argentina took off (with help from Hugo Chavez who provided capital investment for the pleasure of sticking it to the IMF).
However, from 2002 to 2008, the Argentinean peso did not fluctuate much. It stayed stable around 30 cents.
http://moneycentral.msn.com/investor/charts/chartdl.aspx?showchartbt=Redraw+chart&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CF=0&symbol=%2fARSUS&nocookie=1&SZ=0&CP=0&PT=11
which is a 2/3rds tumble from the dollar peg before the default, but it did not contribute to inflation much until 2008.
Which means a different type of inflation was occurring. The GDP of the country grew quickly and consumer demands for products also grew beyond what Argentina's economy was producing. When demand exceeds supply, price inflation occurs. Both Venezuela and Argentina are struggling with price inflation because the people have money in their pockets but the stores are empty.
Inflation number 1 was caused by currency of reduced worth, inflation number 2 was caused by a surge of domestic demand.
"GDP per capita growth over the past decade makes Krugman's chart even less impressive."
How so? They tripled gdp per capita in the space of 6 years:
http://www.google.com/publicdata?ds=wb-wdi&met_y=ny_gdp_pcap_cd&idim=country:ARG&dl=en&hl=en&q=argentina+gdp+per+capita
And in Venezuela, GDP per capita has gone over triple in 4 years.
Growth like this puts incredible stress on commodity production which then puts pressure on wages to match the increasing cost of living - or at least it does when labor is empowered to negotiate their wages.
The other option, which is what happened to the US under Paul Volcker and later Reagan, is to beat back the surge in demand by jacking up interest rates until the money - which would of been spent on consumer goods - is used up on credit payments. Then if you break an air traffic controller's union or to you functionally remove the unions' ability to negotiate.
Greece, unfortunately, is part of a monetary union and cannot devalue their currency until they leave it.
And even then, if the debt is denominated in Euro's, not dinars or whatever Greece would use, then a devaluation would just increase the payments in dinars and not reduce the debt. This was what the idiot neo-libs counseling Russia suggested and it killed their banks and sent their economy into a tailspin. Greece is a big complicated problem.
#3 Posted by Thimbles, CJR on Sat 25 Jun 2011 at 12:09 PM
@ Thimbles, why do you bring up a reporter whose name is not on the story and whose byline has not been in the paper for almost five years?
#4 Posted by David Cay Johnston, CJR on Fri 1 Jul 2011 at 10:02 PM