Monday, July 25, 2011

Default

To Better understand what a country in default actually looks like the easiest way I know is to look at the Latin american debt crisis that occurred during the 1970s and 1980s in Latin american countries.

Begin quote from Wikipedia under the heading "Latin American Debt Crisis". 

Latin American debt crisis - Wikipedia, the free encyclopedia

 

Latin American debt crisis

From Wikipedia, the free encyclopedia
The Latin American debt crisis was a financial crisis that occurred in the early 1980s (and for some countries starting in the 1970s), often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.

Contents

[hide]

[edit] Origins

In the 1960s and 1970s many Latin American countries, notably Brazil, Argentina, and Mexico, borrowed huge sums of money from international creditors for industrialization; especially infrastructure programs. These countries had soaring economies at the time so the creditors were happy to continue to provide loans. Between 1975 and 1982, Latin American debt to commercial banks increased at a cumulative annual rate of 20.4 percent. This heightened borrowing led Latin America to quadruple its external debt from $75 billion in 1975 to more than $315 billion in 1983, or 50 percent of the region's gross domestic product (GDP). Debt service (interest payments and the repayment of principal) grew even faster, reaching $66 billion in 1982, up from $12 billion in 1975.[1] end quote from wikipedia.


As I was watching President Obama speak tonight on TV I realized that we were looking at a 70% to 80% chance of default of U.S. Loans ahead for the U.S.  I thought to myself what this would cost not only the American People but also the Republicans and Democrats? My calculation would be that Obama might not be re-elected and the Tea Party Republicans would never get voted in as even dogcatchers in their home towns after this. They would be pariahs. Obama might retire on his Presidential pension and write books. But then I thought "what if defaulting was in U.S. strategic interests?" This put a completely different slant on all this so I went to Wikipedia and found the above site called "The Latin American Debt Crisis" to look for some clues. By the way the Savings and Loan Debacle in the U.S. (you notice there are NO MORE Savings and Loans now!) was one of the things that happened here in the U.S. when Latin American nations defaulted on Loans given to them by American Savings and Loans and many U.S. depositors lost their life savings and some committed suicide because they lost everything and were over 50 or more years old already. If the U.S. actually does default it could look like the Savings and Loan debacle in other countries holding U.S. debts. Tonight I realized this could actually happen. The odds right now might be as high as 70% to 80% that there will be a U.S. default the way things presently look.

Later: By the way here is a quote from a July 26th 2011 news article:
California planned to borrow about $5 billion from private investors as a hedge against a possible federal government default. end quote.

next quote same article: Obama has said he can't guarantee Social Security checks and payments to veterans and the disabled would go out on schedule. end quote.

Next quote same article:
But many tea party activists abhor political compromise. They insist that their elected officials stand on principle, regardless of the consequences.
"A lot of the tea party guys owe certain support groups," said Rep. Walter Jones Jr., R-N.C. He said he had not decided how to vote on Boehner's bill.
Freshman Rep. Trey Gowdy, R-S.C., bristles at the notion that tea party-influenced newcomers are sheep-like ideologues willing to risk default. "We're not a bunch of knuckle-dragging, mouth-breathing Neanderthals," Gowdy said. "We're interested in answering what we perceive to be the mandate, which is to stop the spending and change the way Washington handles money." end quote.


Here is the article I'm quoting from in all quotes above except for the first wikipedia quote at beginning of the blog article:

http://news.yahoo.com/boehner-delays-vote-debt-ceiling-measure-011558558.html

Here are my thoughts about the most recent quotes above:

There is no doubt that the principles espoused above by the Tea Party are admirable. The problem with this is the only way our government has ever worked is by compromise. Unless compromise is adopted by the "Tea Party" then likely the Tea Party as an idealistic but non-pragmatic and non-compromising group will likely cause the Tea Party to cease to exist. I find this as being very unfortunate because in principle they are right to want a balanced budget. However, in real life our congress never has and never will operate without compromise. This was how our nation was designed. Without compromise our country as a democracy will simply cease to exist.

No comments: