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How Argentina Became A Bad Debtor

Tyler Durden's picture




 

Following this evening's lengthy finger-pointing lecture from Argentina's Kicillof, Argentina formally defaulted. Shortly thereafter the hoped-for private bank bailout deal also failed leaving the default process likely to take a while. So how has Argentina defaulted three times in the last 28 years?

Submitted by Nicolas Cachanosky via the Ludwig von Mises Institute,

This is a complex case that has produced different, if not opposite, interpretations by analysts and policy makers. Some of these interpretations, however, are not well-founded.

How Argentina Became a Bad Debtor

An understanding of the Argentine situation requires historical context.

At the beginning of the 1990s, Argentina implemented the Convertibility Law as a measure to restrain the central bank and put an end to the hyperinflation that took place in the late 1980s. This law set the exchange rate at one peso per US dollar and stated that the central bank could only issue pesos in fixed relation to the amount of US dollars that entered the country. The Convertibility Law was, then, more than just a fixed-exchange rate scheme. It was legislation that made the central bank a currency board where pesos were convertible to dollars at a “one to one” ratio. However, because the central bank had some flexibility to issue pesos with respect to the inflow of US dollars, it is better described as a “heterodox” rather than “orthodox,” currency board.

Still, under this scheme, Argentina could not monetize its deficit as it did in the 1980s under the government of Ricardo Alfonsín. It was the monetization of debt that produced the high inflation that ended in hyperinflation. Due to the Convertibility Law during the 1990s, Carlos Menem’s government could not finance the fiscal deficit with newly created money. So, rather than reduce the deficit, Menem changed the way it was financed from a money-issuance scheme to a foreign-debt scheme. The foreign debt was in US dollars and this allowed the central bank to issue the corresponding pesos.

The debt issued during the 1990s took place in an Argentina that had already defaulted on its debt six times since its independence from Spain in 1816 (arguably, one-third of Argentine history has taken place in a state of default), while Argentina also exhibited questionable institutional protection of contracts and property rights. With domestic savings destroyed after years of high inflation in the 1980s (and previous decades), Argentina had to turn to international funds to finance its deficit. And because of the lack of creditworthiness, Argentina had to “import” legal credibility by issuing its bonds under New York jurisdiction. Should there be a dispute with creditors, Argentina stated it would accept the ruling of New York courts.

Many opponents of the ruling today claim that Argentina’s creditors have conspired to take away Argentine sovereignty, but the responsibility lies with the Argentine government itself, which has established a long record of unreliability in paying its debts.

 

The Road to the Latest Default

These New York-issued bonds of the 1990s had two other important features besides being issued under New York legal jurisdiction. The incorporation of the paripassu clause and the absence of the collective action clause. The paripassu clause holds that Argentina agrees to treat all creditors on equal terms (especially regarding payments of coupons and capital). The collective action clause states that in the case of a debt restructuring, if a certain percentage of creditors accept the debt swap, then creditors who turn down the offer (the “holdouts”) automatically must accept the new bonds. However, when Argentina defaulted on its bonds at the end of 2001, it did so with bonds that included the paripassu clause but which did not require collective action by creditors.

Under the contract that Argentina itself offered to its creditors, which did not include the collective action clause, any creditor is entitled to receive 100 percent of the bonus even if 99.9 percent of the creditors decided to enter a debt swap. And this is precisely what happened with the 2001 default. When Argentina offered new bonds to its creditors following the default, the “holdouts” let Argentina know that under the contract of Argentine bonds, they still have the right to receive 100 percent of the bonds under “equality of conditions” (paripassu) with those who accepted the restructuring. That is, Argentina cannot pay the “holdins” without paying the “holdouts” according to the terms of the debt.

The governments of Nestor Kirchner and Cristina Kirchner, however, in another sign of their contempt for institutions, decided to ignore the holdouts to the point of erasing them as creditors in their official reports (one of the reasons for which the level of debt on GDP looks lower in official statistics than is truly the case).

It could be said that Judge Griesa had to do little more than read the contract that Argentina offered its creditors. In spite of this, much has been said in Argentina (and abroad) about how Judge Griesa’s ruling damages the legal security of sovereign bonds and debt restructuring.

The problem is not Judge Griesa’s ruling. The problem is that Argentina had decided to once again prefer deficits and unrestrained government spending to paying its obligations. Griesa’s ruling suggests that a default cannot be used as a political tool to ignore contracts at politician’s convenience. In fact, countries with emerging economies should thank Judge Griesa’s ruling since this allows them to borrow at lower rates given that many of these countries are either unable or unwilling to offer credible legal protection to their own creditors. A ruling favorable to Argentina’s government would have allowed a government to violate its own contracts, making it even harder for poor countries to access capital.

We can simplify the case to an analogy on a smaller scale.

Try to explain to your bank that since it was you who squandered your earnings for more than a decade,you have the right to not pay the mortgage with which you purchased your home.

 

When the bank takes you to court for not paying your mortgage, explain to the judge that you are a poor victim of evil money vultures and that you have the right to ignore creditors because you couldn’t be bothered with changing your unsustainable spending habits.

 

When the judge rules against you, try to explain to the world in international newspapers how the decision of the judge is an injustice that endangers the international banking market (as the Argentine government has been doing recently).

Try now to justify the position of the Argentine government.

 

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Wed, 07/30/2014 - 22:14 | 5025685 Al Huxley
Al Huxley's picture

And here I thought it was by borrowing more than they collected, without access to a printing press and adequate propaganda apparatus.  Maybe I need more historical context.

Wed, 07/30/2014 - 22:29 | 5025748 Almost Solvent
Almost Solvent's picture

Too fuckin bad you lent money to a deadbeat debtor. 

 

Too fuckin bad you bought bonds at .02$ on the dollar with a 20 year NY judgment enforcement statute.

 

Too fuckin bad you write judgments not worth the paper (paid for by NY taxpayers) that it's written on. 

 

Too fuckin bad you let crooks and hooks take over.

 

Too fuckin bad you spend other people's labor.

 

Too fuckin bad. 

Wed, 07/30/2014 - 22:39 | 5025791 remain calm
remain calm's picture

I say we just hire Rumsfeld and have him explain unknowns and knows to them. And if they don't get it after that, then lets just bomb the fuck out of them, kill that dumb bitch president and start over. That should work out well.

Wed, 07/30/2014 - 22:47 | 5025820 economics9698
economics9698's picture

That 93 IQ thing is really a bitch.  This is what attracts the tribe so much to unlimited immigration, stupid people to fuck over as needed.

Wed, 07/30/2014 - 22:48 | 5025821 neuronius
neuronius's picture

good ole' Rummy!  I want to call him Grampy!  And then I want to kick him in the balls.

Wed, 07/30/2014 - 22:50 | 5025823 strannick
strannick's picture

Argentina choose government debt to paying its creditors? What is unique about that?

Wed, 07/30/2014 - 23:25 | 5025964 BlindMonkey
BlindMonkey's picture

"I say we just hire Rumsfeld and have him explain unknowns and knows to them. And if they don't get it after that, then lets just bomb the fuck out of them, kill that dumb bitch president and start over. That should work out well."

Who is Goldman's on-deck guy to run the next insolvent country? One catch, he has to have a Spanish name.

Thu, 07/31/2014 - 04:22 | 5026409 EBT excepted
EBT excepted's picture

bombing starts in five minutes...

Wed, 07/30/2014 - 22:26 | 5025741 SHEEPFUKKER
SHEEPFUKKER's picture

This whole situation with Argentina is getting Messi. 

Wed, 07/30/2014 - 22:34 | 5025775 max2205
max2205's picture

Change the rules then break the rules....hummmm sounds like, Barry

Wed, 07/30/2014 - 22:17 | 5025696 espirit
espirit's picture

Fuck the moneylenders in the ass.

They'll be back for moar when there is a buck to be made.

Wed, 07/30/2014 - 22:25 | 5025739 DoChenRollingBearing
DoChenRollingBearing's picture

Right, yes.  The lenders have never showed any discipline to Argentina after, say, five years after a default.  They loan money to an wildly irrepsonsible government, they take the consequences.

Argentina is another one of those places I would never invest in.  No gracias!

Wed, 07/30/2014 - 22:43 | 5025802 kliguy38
kliguy38's picture

they're after their assets.... they know they can't get any money....they want their "blood"

Wed, 07/30/2014 - 23:12 | 5025934 Coke and Hookers
Coke and Hookers's picture

"The governments of Nestor Kirchner and Cristina Kirchner, however, in another sign of their contempt for institutions, decided to ignore the holdouts..."

What institutions is the autor referring to? Some court in NY? Why would anyone show a US court anything but contempt?

In my opinion countries should AS A RULE never pay debt that has been sold. They should always selectively default on it. A lender, by selling the debt, is transferring his responsibility away, and lack of responsibility from lenders is the last thing we need. Vulture funds are the scum of the earth and need to be eradicated. Fuck Elliott, fuck US courts (who seem to think they have global jurisdiction) and fuck hedge funds in general. And fuck Mises for letting this be posted in their name.

Thu, 07/31/2014 - 06:58 | 5026506 BigJim
BigJim's picture

If the Argentine government were saying they were defaulting on the debt because no government has the right to borrow money, and then demand that the citizens within that polity - regardless of whether they voted for that government - are obliged to pay for it (or face getting thrown into a cage with real criminals)... then yes, fair enough. Let the sovereign debt market collapse, and governments raise money honestly through taxation.

But as the Argentine government will no doubt be trying to raise more money on the international market for its deficit spending, then it has to play by the rules of that market... and it didn't.

Thu, 07/31/2014 - 08:04 | 5026590 taraxias
taraxias's picture

Bullshit.

The sovereign makes the rules, not the other way around.

Fuck Slinger, fuck the vulture funds, fuck the NY cangoroo courts.

About time someone says "fuck it" to this usury madness, and it came from an unlikely source. Good on you girl.

Thu, 07/31/2014 - 08:11 | 5026606 Ghordius
Ghordius's picture

taraxias, while your argument is usually valid, the case around those Argentine bonds that were put on the market 10 years ago is slightly more complex

they made hundreds of "vehicles", in all kinds of currencies, and under all kinds of jurisdictions. a bit like they were thinking about providing a lot of income to all kinds of advisors and legal counsels in the future. and that future... is now

"Fuck" is, I believe, the correct word, here

Thu, 07/31/2014 - 07:18 | 5026528 samcontrol
samcontrol's picture

Do hen...

Actually it is a VERY GOOD TIME to be buying land and properties.
buy low sell high kind of shit.

Wed, 07/30/2014 - 22:15 | 5025697 Elliptico
Elliptico's picture

Tishman Speyer defaulted on billions, too. They still get credit, and so will Argentina.

Wed, 07/30/2014 - 22:17 | 5025701 Al Huxley
Al Huxley's picture

Hey, where else you gonna get a decent coupon?

Wed, 07/30/2014 - 23:22 | 5025968 NoDebt
NoDebt's picture

Balance sheet always looks better immediately after a debt write-off.  Agreed, they will be back in the market again in no time.

Wed, 07/30/2014 - 23:29 | 5025995 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Three years max.  History shows this.

Thu, 07/31/2014 - 01:52 | 5026294 darkpool2
darkpool2's picture

China will be ready and waiting with DIP financing. This is just a skirmish in the war over the USD and the ROW

Wed, 07/30/2014 - 22:23 | 5025712 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

Those poor, poor creditors... they were forced to lend to Argentina.

I think it should be called the Ludwig von Misses Institute

Wed, 07/30/2014 - 22:42 | 5025797 putaipan
putaipan's picture

ha. i got the most 'reddys' i ever got the other day with an  anti-austerity rant. was reading through this article and thread picking up on the vibe, but not having  noticed its' source. hehe. i can't wait to see the anti-free shit army hit the streets banging on their pots and pans.

Wed, 07/30/2014 - 22:22 | 5025718 Platypus
Platypus's picture

Every time you lend money there is risk!! If I was Argentina's president I would give this pleople the finger too. Just for fun :)

Wed, 07/30/2014 - 22:25 | 5025728 alfred b.
alfred b.'s picture

 

     GO ARGENTINA!! ....oh wait, is the World Cup over?     Ok, so what?     GO ARGENTINA!!

 

 

Wed, 07/30/2014 - 22:40 | 5025793 Cognitive Dissonance
Cognitive Dissonance's picture

Neither a lender nor a borrower be?

Wed, 07/30/2014 - 22:52 | 5025837 strannick
strannick's picture

Neither a lender or a borrower be,

And you have no central bank or fractional reserve economy.

Wed, 07/30/2014 - 23:02 | 5025887 shinobi-7
shinobi-7's picture

Certainly a good personal motto but it doesn't make sense for a company. Clients WILL pay you late and insist that you provide services on time. This automatically makes you both a borrower and a lender. You cannot run a business without a credit line unless you have plenty of cash available which few companies do. Once you're listed this option disappear as shareholders will not allow you to have cash "sleeping" on your bank account.

Thu, 07/31/2014 - 10:36 | 5027150 Matt
Matt's picture

Prepaid. payment first, then recieve the goods or services. Would only work if everyone did it.

Wed, 07/30/2014 - 22:42 | 5025796 Karaio
Karaio's picture

Durden, better think more. 

 

I am Brazilian and I know that Argentina has 4 nuclear power plants (Brazil has two), the best beef in the world, does not depend on oil (exports), is self-sufficient in food, has a well-established industry. 

Received open arms many Germans after IIWW (hehe) 

Ah, is part of Mercosur (per table, BRICS). 

Putin been there recently. 

If Argentina solve show ring finger may believe they are supported and, at worst, no one (the people) will difficulty.

Wed, 07/30/2014 - 23:19 | 5025958 NoDebt
NoDebt's picture

Wait.... what?

Wed, 07/30/2014 - 23:52 | 5026080 Wahooo
Wahooo's picture

Here you go, I fed it through the translator three times, English to Spanish to English to Spanish to English: 

If Argentina resolves Show ring finger may believe they are compatible and in the worst case, nobody (the people) will make it difficult.

 

Wed, 07/30/2014 - 23:26 | 5025982 Kirk2NCC1701
Kirk2NCC1701's picture

Your last sentence makes no sense.  Sounds like Word Salad.  Please re-phrase.

Thu, 07/31/2014 - 07:21 | 5026532 samcontrol
samcontrol's picture

It is WAYYYYYY more than self sufficient in food.

Brasil decime lo que se siente .......

Wed, 07/30/2014 - 22:43 | 5025801 Karaio
Karaio's picture

Durden, better think more. 

 

I am Brazilian and I know that Argentina has 4 nuclear power plants (Brazil has two), the best beef in the world, does not depend on oil (exports), is self-sufficient in food, has a well-established industry. 

Received open arms many Germans after IIWW (hehe) 

Ah, is part of Mercosur (per table, BRICS). 

Putin been there recently. 

If Argentina solve show ring finger may believe they are supported and, at worst, no one (the people) will difficulty.

Wed, 07/30/2014 - 22:44 | 5025808 Dien Bien Poo
Dien Bien Poo's picture

This article is utter bollocks. Argentina is solvent; it is formaly defaulting to prevent a legal precedent that might (will) cost it billions more than it has negotiated. It is doing the sensible thing. Bugger the HF community. They will soon forget and play the +ve carry game again, sooner than you think. How do I know? Because HF's are like drunk gamblers; they simply cant help themselves. 

Wed, 07/30/2014 - 22:50 | 5025832 Jack Burton
Jack Burton's picture

The IMF is shoveling money into Ukraine, now how does that look set to work out? 

Wed, 07/30/2014 - 23:30 | 5025996 BlindMonkey
BlindMonkey's picture

IMF can't do that. They can't support a country at war since any money given will be siphoned for other purposes.

Wed, 07/30/2014 - 23:32 | 5026010 BlindMonkey
BlindMonkey's picture

Am I the only one around here that gives a shit about the rules!!!

http://youtu.be/-z0Pm7tccvc

Wed, 07/30/2014 - 22:52 | 5025838 shinobi-7
shinobi-7's picture

The legal case is cristal clear. Paripassu exist for a reason and it is no suprise that almost all bond issues have it. Otherwise all new debt would contain better terms than old to make it more attractive.

What makes this case interesting is that if you focus on the long term then clearly Argentina is wrong as the article argues. But if you focus on the short term, then the vulture funds are just mis-using a clause to make a killing: asking dollars of return for cents.

There are no good guys here! Bankrupt country with dishonnest government battling vulture funds. Whoever wins doesn't matter but for the sparks it sends on the over-dry financial system.

Thu, 07/31/2014 - 06:07 | 5026461 nodhannum
nodhannum's picture

"Yes, asking dollars of return for cents".  Why the hell didn't Argentina (read the free shit army) just buy up the debt for cents on the dollar and be done with it.  Ever loan a cocaine head money who says they will pay you back next week.  The Argentines thought they could just fuck over the hold-outs on those bonds.  Just wait until they try not paying the Chinese and/or Ruskis!

Wed, 07/30/2014 - 22:52 | 5025839 NoWayJose
NoWayJose's picture

It is the judge that caused this by letting the holdouts block the settlement. The settlement is the result of free market negotiations of bond holders who were stupid enough to lend money to Argentina. The result is a haircut for the bond holders. The judge's ruling does NOT lower borrowing costs because it emboldens more speculators to dive in cheap - then hold out - this will be RAISING the chance of future defaults (since there can be no settlements or haircut negotiations)!

Wed, 07/30/2014 - 23:37 | 5026016 BlindMonkey
BlindMonkey's picture

I have no idea who down votes that. Whatever. Great reasoning.

Edit: Ahhh. Everybody got a red on the thread. Some jokester trolled by and shit all over the place. Cleanup isle 12!!!

Wed, 07/30/2014 - 23:47 | 5026057 Wahooo
Wahooo's picture

I think her name is Kirchner.

Thu, 07/31/2014 - 00:24 | 5026147 AurorusBorealus
AurorusBorealus's picture

You are more-or-less correct.  However, the one thing that you haven´t considered, nor has Captain von Mises, is the role of Credit Default Swaps in the negotiations.  We will probably never be sure (since ZH is the only place that reports on such things and they apparently hold some of Elliot´s bonds, given their reporting on Argentina), but I am willing to bet Elliot and some of the other funds had CDS on either their debt or on the debt that had already been negotiated.  Thus, they most likely had a vested interest in default (did they tell you about this.... Tyler?).  The reality is... in the "new" Wall-Street normal of CDS´s, rehypothecations, and shadow-banking, there is always someone betting on and trying to encourage default... sometimes even the debt holders themselves.  Since, everyone can just expect a bailout if the company on the hook for the CDSs is "too-big-to-fail," the capacity for perverse incentives is everywhere.  Probably nothing... in any of this... is at it seems.

Thu, 07/31/2014 - 06:12 | 5026466 nodhannum
nodhannum's picture

Pay your f__king bills is the solution.  You sound like one of those union pension guys at GM when they fucked over the senior bond holders for the fuhrer rein and don't borrow more than you one can handle and yes that should apply to US.

Thu, 07/31/2014 - 06:53 | 5026501 Bangin7GramRocks
Bangin7GramRocks's picture

Boo Frickitty Hoo! Earn a living like a real man you parasitic lowlife! Fuck em' in the other ear Argentina!

Wed, 07/30/2014 - 22:53 | 5025845 SantaClaws
SantaClaws's picture

But wait -- isn't the President of Argentina hot?  If so, then give her a pass.  She shouldn't have to be bothered with debts.  Party on, Argentina!

Wed, 07/30/2014 - 22:55 | 5025857 THE DORK OF CORK
THE DORK OF CORK's picture

paying its obligations ?

To some nice lads in New York who control the worlds capital flows..........(in their interest)

 

Zero Hedge showing its true colours me thinks.........

Thu, 07/31/2014 - 07:13 | 5026520 buzzsaw99
buzzsaw99's picture

yeah, zh sides with the maggots entirely too much imo

Wed, 07/30/2014 - 22:56 | 5025860 panem et circenses
panem et circenses's picture

I'll certainly buy the next 10y bond that Arg will issue. 10y, just to be safe.

Wed, 07/30/2014 - 23:15 | 5025871 asiafinancenews
asiafinancenews's picture

Interesting.

On a comparative note, the People's Republic of China repudiated China's full faith and credit external sovereign debt in 1983, and then engaged in an exclusionary settlement with U.K. bondholders in 1987 (which settled only those bonds held by UK Nationals) ...  all without any adverse effect on China's sovereign credit rating.  Even though the PRC is in 'selective default', it enjoys an investment grade credit rating.

Unfortunately for Argentina, and unlike China, it lacks a sufficient number of corporate issuers to provide ratings revenue to S&P and Moody's via the issuer-pay revenue model, to protect its sovereign credit rating from being relegated into selective default.

http://www.globalsecuritieswatch.org/DOJ_Antitrust_Complaint

 

Wed, 07/30/2014 - 23:03 | 5025891 Gmpx
Gmpx's picture

I think that XYZ country owes me 100 bln dollars. They do not know about this and even if they knew they would have refused to pay me. So in my opinion XYZ country is in Default.

It only depends if my opinion is can be enforced.

Wed, 07/30/2014 - 23:04 | 5025898 WTFUD
WTFUD's picture

Is that bag full or can we get some more shit in it?

Wed, 07/30/2014 - 23:06 | 5025914 THE DORK OF CORK
THE DORK OF CORK's picture

“This may appear to be word
splitting, but when we realise that the whole of the industrial, legal, and social system of
the world rests for its sanctions on this theory of rewards and punishments, it is difficult
to deny the importance of an exact comprehension of it.
For instance, the industrial unrest which is disrupting the world at the present time, can
be traced without difficulty to an increasing dissatisfaction with the results of the
productive and distributing systems. Not only do people want more goods and more
leisure, and less regimentation, but they are increasingly convinced that it is not anything
inherent in the physical world which prevents them from attaining their desires; yet
captains of industry favourably situated for the purpose of estimating the facts, are almost
unanimous in demanding a moral basis for the claim put forward. That is to say, those
persons whose activities at the present time are chiefly concerned with restricting the
output of the economic machine to its lowest limit, while yet asking each individual to
produce more, are determined that not even the over-spill of production shall get into the
hands of a semi-indigent population, without some equivalent of what is called work,
even though the work may still further complicate (11) the problem with which these
industrial leaders are concerned. Nor is it fair to say that this attitude is confined to the
employing classes. Labour leaders are eloquent on the subject, and with reason. The
theory of rewards and punishments is the foundation stone of the Labour leaders’
platform, just as it is of the employer whom he claims to oppose. The only difference is
in respect of the magnitude and award of the prizes and as to the rules of the competition
for them. To any one who will examine the subject carefully and dispassionately it must
be evident that Marxian Socialism is an extension to its logical conclusion, of the theory
of modern business. ”
CH Douglas

This system of rewards and punishments in a system without effective demand is a talmudic / Masonic concept.

I.e. it is a preverse mockery of reality on the ground.

We are seeing a basic failure of the production /consumption system as a result  savage Usury.

Wed, 07/30/2014 - 23:08 | 5025917 marco caricom
marco caricom's picture

Thank you for a clear, concise summary of the facts.  This should be required reading for all who want a clear understanding of what has taken place.

Wed, 07/30/2014 - 23:41 | 5026041 ElixirMixer
ElixirMixer's picture

Since when have facts mattered? 

Wed, 07/30/2014 - 23:17 | 5025951 THE DORK OF CORK
THE DORK OF CORK's picture

There are some deductions of major importance which can be made from these premises.
The first is that money is nothing but an effect- (131) tive demand. It is not wealth, it is
not production, and it has no inherent and indissoluble connection with anything
whatever except effective demand. That is the first point, and it would be difficult to
overrate the importance of a clear grasp of it. It lies at the root of the question as to the
true ownership of credit-purchasing-power. The second point is that, so far as we can
conceive, the co-operative industrial system cannot exist without a satisfactory form of
effective-demand system, and the result of an unsatisfactory money system (that is to say,
a money system which fails to function as effective demand to the general satisfaction) is
that mankind will be driven back to the distinguishing characteristic of barbarism, which
is individual production. And the third point, and the point which is perhaps of most
immediate importance at the present time, is that the control of the money system means
the control of civilised humanity. In other words, so far from money, or its equivalent,
being a minor feature of modern economics, it is the very keystone of the structure”

CH Douglas – speaking during the interwar years

Wed, 07/30/2014 - 23:30 | 5026004 orez65
orez65's picture

"... is that the control of the money system means
the control of civilised humanity"

No, no, no, ... !!!!!!

It's the control of FIAT MONEY!

The ability to have the sheep accept pieces of worthless paper as money.

There is no such thing as a "money sytem".

Money is gold or silver, period.

Wed, 07/30/2014 - 23:41 | 5026033 THE DORK OF CORK
THE DORK OF CORK's picture

Money is a mechanism.

It is not a specific thing.

The money changers of medieval England were kicked out of dodge if I remember correctly.

They controlled Specie in their own interest.

Cromwell and the lads allowed them back in.

 

Wed, 07/30/2014 - 23:20 | 5025961 dogismycopilot
dogismycopilot's picture

every fucking shylock learns early on, 'you only lend to ready, able and WILLING borrowers'.

these lenders are big boys, they know the game. tough titty said the kitty, the milk is all gone.

Wed, 07/30/2014 - 23:48 | 5025962 The_Prisoner
The_Prisoner's picture

There is a case to be made for calculated default on sovereign debt in a world in which the reserve currency printer's hegemony is faltering. "That which is failing should also be pushed" What will the shylocks, as aptly put by a commenter above, gonna do about it? Another false flag bombing in BA? A US State Department National Endowment For Democracy-style destabilisation?

 

Thu, 07/31/2014 - 00:17 | 5026136 AurorusBorealus
AurorusBorealus's picture

If this prompts Argentina to complete its move away from the USD entirely (as it has already taken many steps in that direction), then I think that it is safe to say there will be a full-blown $5 billion USD CIA-funded destabilization effort commencing in Argentina.

Thu, 07/31/2014 - 01:22 | 5026249 The_Prisoner
The_Prisoner's picture

That is what the US has done in the past, so it stands to reason it is what they will do this time around. However, this time there seems to be a greater level of cooperation between South American countries. In the 60's, when the US installed Dictators in pretty much all of Latin America, the countries were isolated.

Wed, 07/30/2014 - 23:22 | 5025967 potato
potato's picture

in a just world, buyers of US treasuries ought be accused of financing terrorism.

Wed, 07/30/2014 - 23:22 | 5025969 orez65
orez65's picture

"This should be required reading for all who want a clear understanding of what has taken place"

I want "Money for nothing and chicks for free ..." Dire Straits

Wed, 07/30/2014 - 23:24 | 5025974 syntaxterror
syntaxterror's picture

Can't they just steal from savers? Surely they can find someone to steal from.

Wed, 07/30/2014 - 23:27 | 5025987 AurorusBorealus
AurorusBorealus's picture

Ok... Von Mises... I´m your Huckleberry.  Argentina, like any debtor, does not have to pay any debts to anyone.  The onus is on the creditor to enforce collections.  Since the Argentina´s credit rating was already at nearly the lowest level and Argentina, now, has little or no access to international credit markets, the question then follows: why should Argentina repay Elliot Capital Management or any of its hold-out creditors, especially when we consider that much of this debt was accrued by a former and now defunct government?

The consequences of an Argentine default fall more heavily on the creditors than on Argentina.  As another poster observes, Argentina has plenty of food, most of the products it needs are manufactured in the country (thanks to import tariffs that encourage domestic manufactures), and is mostly energy independent.   How much "international" capital does von Mises think Argentina needs?  Like Europe with Russian energy, China needs Argentine soy more than it needs more funny-money U.S. dollars. Therefore the creditors should have been willing to negotiate.  Since they were not willing to negotiate, we can only assume that they had insured their debt via Credit Default Swaps. 

Thus, it seems likely that, they used Argentine debt to swindle insurance companies, most likely, just as U.S. sub-prime home mortgages were used to swindle insurance companies- a nation and a people used so that a few Elliot Management people can ride around in limos on Wall Street blowing coke up their nose and fondling high-priced prostitutes.  While one can bang a holy drum about contracts, the rule of law, and the moral obligations of paying back debts all one wants, Argentina is perfectly within her rights to tell them all to go to hell.  And the  Fed-financed, funny-money world of Wall Street bankers and hedge funds has no moral high-ground here, no matter how many contracts, laws, and rights you bang on the table. 

Last I heard, a lot of people haven´t been paying their debts lately, like 75 million American citizens, for example, or General Motors, for example, or Detroit, for example, or Harrisburg, Pennsylvania, or Greece, or Iceland, or any number of banks and insurance companies in 2008, when the Fed had to print money to bail everyone on Wall Street and everyone in Europe out, or even the U.S. government, which is some 17 trillion in the hole, or France, or Italy, or Espiritu Santo, or various Chinese entities.  So stop with your sanctimonious blather about the morality of contract-law and the repayment of debts.  The system itself is corrupt and broken beyond repair.  Look at how one nation has appropriated for itself the ability to print international money, look at how the CIA and NSA run about the world causing havoc in every nation that tries to opt out of this system, and then explain to me again how the world is built upon the sacrosanct nature of laws and contracts: debts and repayments.

Wed, 07/30/2014 - 23:49 | 5026068 Gromit
Gromit's picture

Actually a blessing for Argentina being unable to access capital markets - can't just piss money away like most countries.

 

Thu, 07/31/2014 - 06:48 | 5026496 TNTARG
TNTARG's picture

Right. As an argentinean, I don't want my country to lend money from any usurer. Money that NEVER goes and never has gone to the people.

 

Thu, 07/31/2014 - 10:40 | 5027160 AurorusBorealus
AurorusBorealus's picture

It is worse than usury.  Elliot and the others most likely deliberately caused a "default event" to collect on CDS bets made through another legal entity either on their debt or on the debt that others had negotiated.  Basically, the Argentine people and government, and the bonds that others held and were collecting payment on were used by Elliot to swindle an insurance company.  Everyone else loses and Elliot wins, with what was nothing more than a scam.  In the mind of von Mises, this is justice.  It just shows how small and narrow minded Austrian school economics is.  The really unfortunate thing about it all was that Argentina was naive to what a cess-pool Wall Street really is and played into Elliot´s hands by forcing the issue in court.

Wed, 07/30/2014 - 23:30 | 5025997 THE DORK OF CORK
THE DORK OF CORK's picture

Money has a cost ??????????

Who says money has a cost ????????

Why - the money lenders of course.

 

There is a whole lot of real physical shit the Argies produce.

How much stuff (other then debt) is produced in New York state pray tell ???

Why does New York have claims on the worlds resources ???

 

Wed, 07/30/2014 - 23:49 | 5026067 The_Prisoner
The_Prisoner's picture

Got that right.

That's the money lender's shabby secret. tell them to stick it...just watch out for US-funded NGO's operating in country.

Thu, 07/31/2014 - 00:43 | 5026189 syntaxterror
syntaxterror's picture

Money and capital have ZERO cost according to the dickhead, thieving government.

Wed, 07/30/2014 - 23:56 | 5026092 HeavydutyMexica...
HeavydutyMexicanOfTheNorthernKingdom's picture

Mark my words, Chile is going to be the country that causes the downfall of the US.

Thu, 07/31/2014 - 00:25 | 5026144 Battlecom1
Battlecom1's picture

And you all still wonder why so many South American and Central American refugees...and they are refugees are moving north towards America.  The dominos are falling, and the United States is desperate to be the last.   The dollar gentlemen, the last bastian of hope in this house of cards is being held up by that same thread that held Kennedy's Sword of Damocles in reference to...well you all know what.  

 

So what shall it be, collapse of the financial unreality.   Or a nuclear war to cover up the finality that those who pull the strings fear to aknowledge.  

We see it, you see it, they see it.

We are Annonymous, The Outside Agency, We the People.

...and we are prepared.  Are you?

 

-Central Dispatch

 

 

Thu, 07/31/2014 - 01:41 | 5026284 Peter K
Peter K's picture

Objective reality and the laws of mathamatics are a Mo-Fo's!

But it always pays to be a irresponsible populist, since you can always blame it on the bankers.

Thu, 07/31/2014 - 02:21 | 5026328 onmail
onmail's picture

Its a good idea to default.

Take billions of $ from west and refuse to pay back.

Its a sweet revenge for the Falklands war with British.

Its like QE.

Thu, 07/31/2014 - 02:48 | 5026352 dogismycopilot
dogismycopilot's picture

to the shysters, i say if you are going to be a lender you must also know how to properly reposses or arrest.

An Argentine naval ship which was detained in Ghana for more than two months has arrived back home.

http://www.bbc.com/news/world-latin-america-20966460

Thu, 07/31/2014 - 03:17 | 5026365 green snake
green snake's picture

What can you expect from a deadbeat nation? Is it a nation still? After failing so many times maybe it's time to let it fall apart and let others take over that country. 

Thu, 07/31/2014 - 04:15 | 5026404 Notsobadwlad
Notsobadwlad's picture

It is easy to justify the position of any government or individual who defaults on a bank "debt" or money given to hedge funds by banks for the purpose of lending.

The bank creates money from nothing and then expects that as a result of this creation of money from nothng they have a right to sieze real wealth in the form of tangible assets and to dictate the policies of government and their people. That is insanity. The bank has given nothing, has risked nothing and should be owed nothing. What was created from nothingness and cost the bank nothing to create can go back into nothingness and will cost the bank nothing to destroy.

People should be incensed that banks are allowed to do what they do at all. It is insanity. The system of credit rating is corrupt and insane as well. And the legal system built around it is corrupt and insane ... to enforce compliance through force the handing over of tangible assets in exchange for something created out of nothing at no risk.

Thu, 07/31/2014 - 06:09 | 5026464 PowerPlayer
PowerPlayer's picture

Stop lending money to deadbeats.  I don't feel sorry for any of the creditors that lose money on this nonsense.  

Thu, 07/31/2014 - 06:41 | 5026467 TNTARG
TNTARG's picture

The article and many comments are wrong wrong wrong... Or misleading.

First,

The "Convertibility" was a path to dolarization of Argentina's Economy, thus puttig the country in the same scheme as Eurozone countriess. That is: gvt has to BUY every note by printing BONDS, paying interests over every buck in circulation TO A BANK THAT DOESN'T BELONG TO THE STATE BUT TO PRIVATE BANKERS.

Eurozone countries are not allowed to default because under this scheme, gvts are SLAVES of banksters; so comes "austerity". Gvts loose capacity of decision making.

Second,

Argentina is not a "bad debtor" (always pays, EVEN PRIVATE, NATIONALIZED DEBTS as happened with the Brady plan and other "reestructurization programs" of the sort, aimed to make countries (people, thoug) eternal bankster's contributors. Think properly and inform yourself, reader, 'cause your country is probably such.

Almost 93% of Argentina's post 2001 defaulted public debt was renegotiated and agreements were settled. The present case about NML/Griesa involves 1% among the 7% of the remainig bonds.  

If the gvt accomplishes Griesa's order, Right Upon Future Offers (RUFO) could be triggered. The RUFO stipulation held with bondholders that entered 2005 and 2010 debt swaps dictates that Argentina give restructured titles the same payment conditions as those negotiated afterwards.  

Paying NML would be a nightmare for argentinians, a triumph for banksters.

Our govt can't do that: people would surely throw them out in a blink.

When the US/CIA and fellows' coup d'ete had place in 1976, Argentina's public debt was under u$s 6 billion, it represented but a small portion of GDP. Under illegal Junta, it climbed to u$s 46 billion. Then to u$s 65 when Menem took office. Menem revealed himself a banksters sponsored gvt.

In spite of all the privatizations of state-owned companies which were supposed to reduce Foreign Debt, Argentina’s Public Debt had increased to around u$s 130 billion.  

Then De la Rua president, the MoE Cavallo managed to push through several Mega-Swaps of old Brady Bonds for new bond issues, the most notorious of which was the one they did in June 2001 which in just one month generated over 50 billion dollars of spurious additional new debt. By then, Argentina’s Public Debt had leapt to around u$s 180 billion and in December 2001 the country defaulted on its debt with private bondholders and only continued making essential interest payments to the International Monetary Fund (IMF) and other multilateral institutions within the framework of the usual IMF/World Bank debt restructuring and re-engineering strategies.

So please, stop the BS.

   

Thu, 07/31/2014 - 06:15 | 5026468 falak pema
falak pema's picture

the whole purpose of debt slavery à la IMF and TBTF owners is to make nations of third world addicted to debt.

So Argentina is a BASKET CASE, especially as its elites are picked by the Oligarchy of bankers who run the world to ENSURE that defaults occur making Argentina a national and PERMANENT WHORE to the banksta system.

1° You addict them to debt.

2° You have them elect Oligarchy front men, who cry "bleeding hearts" and enjoy private fiat farts once out of office --lovely payback!

3° You rinse and repeat and you have a slave economy. All over the world.

Thats what a UNIVERSAL EMPIRE is.

Until one day...a 80 year people's war starts.

Thu, 07/31/2014 - 06:37 | 5026484 TNTARG
TNTARG's picture

P.S.: They couldn't dolarize Argentina. The ALCA neither could be settled early in 2004.

Perhaps they decide bombing down Argentina too, who knows? "to the stonge age", as they like to say (and do).

 

Thu, 07/31/2014 - 08:01 | 5026586 youngman
youngman's picture

Now the Elliot boys have to search the world for assets to take....they took a tall ship a few years ago...I hear the Falklands were once Argentinas..so they say....maybe they can take those over again...lol

Thu, 07/31/2014 - 08:23 | 5026636 nopat
nopat's picture

When will people get it through their fucking heads: Argentina waived its sovereign immunity when it issued these bonds under NY law and tied their hands during the 2005/2009 restructurings.  This is a problem of their own doing.  Let them eat shit.

Thu, 07/31/2014 - 08:33 | 5026669 naiverealist
naiverealist's picture

Now we will see how the derivative swaps will (will not) be triggered.  I haven't heard anything about them yet.

 

Watch the term "default" be redefined so there will be no pay out, nor can there be.

Thu, 07/31/2014 - 08:54 | 5026746 El_Puerco
El_Puerco's picture

 

I think I will stay on with this video: 

 

Better than most of comments here...

http://bit.ly/17az4S0

Time index 12:40

 

Good one!

 

 

Thu, 07/31/2014 - 11:15 | 5027335 EndTheIllusion
EndTheIllusion's picture

The article states :"Griesa’s ruling suggests that a default cannot be used as a political tool to ignore contracts at politician’s convenience."

Another fine example of our totally corrupted judiciary. Oh, the sanctity of the contract when it comes to banker bonuses, hedge fund agreements, and payment of Interest Rate Swaps to the "too big to fails", etc, etc, etc.

The sanctity of the contract [or even the law] is not quite so important when it comes to making even fractional payments into  the New Jersey pension fund, where the argument that it would "burden" the budget was used by the judge. How about the sanctity of the contract in regards to paying Detroit pensioners, all while full payments are being made to the vultures holding the Interest Rate Swaps? 

The totally corrupted judiciary upholds one law for the rich, another for the rest of the chumps who actually work for a living. 

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