In response...

USA 2009 = Argentina 2001?
My response to that article is this: Pure sensationalism. Economics is such where you can pretty much draw almost any conclusion that you would like and then graphically and fundamentally support that conclusion. I see this article, and I think back to what I have read and studied relating to Argentina. It is my rudimentary understanding, as I am not an economist, that Argentina had a currency board. What does this mean? Well, in short, it means that they did not have monetary policy. Their central bank, if I remember correctly, was forced to maintain a dollar peg and currency speculators eventually pressured and succeeded in forcing a devaluation of the currency relative to the dollar. Combine this with the fact that many debts were in dollars and the Argentinian currency, with a devaluation, was worth substantially less of them per constant unit, and you can see the significant potential for problems. However, for the following reasons, I think that this conclusion and subsequent comparison is ill-founded for the long term, as many, MANY very bad things would have to occur prior to its ever coming to actual fruition.

First, the United States has a central bank and independent monetary policy. Is it perfect? Of course not. But, did Argentina have the TALF, the TLGP, or any of the other major programs put into place to help to stabilize confidence in its debt markets? This alone does not and will never ensure that major issues can't ever occur...not in the slightest. But, a comparison to Argentina, at this point, to me, completely discounts the effectiveness of many of the programs that were instituted quickly and efficiently during the early stages of crisis.

Second, the United states economy is clearly not comparable to the Argentinian economy in any major or measurable way. True, the case can be made that both economies had larger measures of their populations borrowing more than they should be borrowing. That's kind of a subjective rather than objective point, but the whole idea of credit contraction advanced in the article is certainly true. However, look at some relatively common economic indicators. I won't bore you with too many details, but, just think about per capita GDP. Per capita income. Things that compare the purchasing power of the average US citizen to that of the average Argentinian. I'm not saying that Argentina is a backward nation, not by any means. I am merely saying that they two are far from comparable. Types of jobs, training, education, standards of living...two vastly different countries...and this cannot and should not be discounted.

Thirdly, look at the causes of crisis. Argentina was a country that attracted a lot of foreign investment that, at the first sign of trouble, turned on its heel and ran out of there as quickly as possible. What does that tell you? Well, to me, again, based on my experience in looking superficially at the crisis, it says that there were a lot of short term projects looking for a quick return, and there was less real, long-term focus on value creation. The United States is a service-based economy depended, at least in recent past, on its consumers. Foreign investment is nice, and it does currently finance a massive fiscal deficit and a massive trade deficit. This cannot and should not be overlooked. If all of that money turned on its heel quickly and flew out of the country tomorrow, we would be in SERIOUS trouble as a nation. But, look at this logic. If money is running out of Argentina, where can it go? If money runs out of the United States, where can it go? It's true, China has been talking, Russia has been talking, and the IMF is in the early stages of what seems like bond issuance. In the near term, will this market be sizeable enough and liquid enough to replace the treasury market as the most liquid and most safe market in the world? It's just not possible to think of it at this point as a near-term alternative. The Euro, the Yen? Again, not possible. A country like China has a simple problem. Had it invested in Argentina, this country and investment opportunity was never large enough to be "significant." It was a diversifier...a diversion of some reasources, but one that could be easily written off and backed away from. The US market? The US market is not at the point of being a diversion. No major player invests in treasuries to "diversify." It is the most liquid and safest market in the world. Bonds of almost any maturity are offered, and, the key, the BIG key, is that you know when and what you are getting back at all times.

Fourthly, look at the lead up. Securitization...financial innovation...banking or mortgage malfeasance, etc. But, in Argentina, an important question to ask is simple. Did they have the FDIC? Where customer deposits safe? I'm not talking about loans...I'm talking about the savings of citizens. I'm talking about the need for people to make "runs" on banks. With US policy, this hasn't happened? I believe it did happen in Argentina, and I believe, but might be incorrect, that citizens in some cases lost everything even if they weren't taking risks and simply leaving their money at the bank. This is a big deal, and, in the United States, it has mitigated many potentially disastrous effects.

There are many other points and questions that can be brought up, but they all point back towards the same point. The article is interesting, the title grabs you, but it's the same as comparing the US to Zimbabwe, which was another article that came out 2-3 weeks ago when the yield on the 10-year increased "dramatically." It's pure sensationalism. Government and FED policy cannot and will not be perfect as we navigate forward. The Deficits could cause rather significant problems. But, saying that we are in danger of being similar to Argentina, Zimbabwe, or any other country in the developing world is an extreme leap and cannot yet be supported. Extreme negatives such as those might be just as likely to happen as extreme positives, but, no one writes about those. I guess they aren't as interesting to read.