Nations To Default Debt?
An article today in London’s Financial Times raises eyebrows.
It is innocently titled, “Bankruptcy regime for nations urged“.
When the Financial Times (FT) speaks, the monied world listens.
This is definitely one of those times every one of us should listen. The economic future of the planet could depend on it.
So what is the Big Deal?
Back in 2001 Argentina defaulted on it’s sovereign debt. So why is that a big deal?
The big deal is that other nations, including the United States, may chose that same course of action now or in the near future. The International Monetary Fund (IMF) might sanction it.
It is called “voluntary Chapter 11 for countries”. The concept has got a lot of attention lately because of the eurozone financial crisis.
Having a clear mechanism could have prevented all sorts of problems in the eurozone
– Anne Krueger, former chief economist at the World Bank and now with the IMF, 1/6/2013
It all evolves from an obscure legal decision.
In that decision, a firm – Elliott and Associates – argued against Argentina.
Elliott successfully argued that Argentina’s creditors could not continue to pay holders of its restructured debt while ignoring creditors that refused to sign up to the restructuring deal.
Basically, it means that if you don’t sign on to any nation’s deal for restructuring its debt, then tough toenails… you gotta take the loss anyway.
For the rest of world, creditors of Argentina doesn’t amount to a hill of beans. But for creditors of the United States it makes all the difference in the world.
If eurozone nations and the United States default then, based on the Elliot decision, creditors have no recourse but to capitulate.
Who cares? Why should anyone care what happens to bunches of money grubbing creditors?
We should care because those same creditors are the outsiders financing the U.S $16.4 trillion national debt. Should they decide U.S. debt is a lost cause then this nation is toast!
If the United States defaults on its debt then, based on the Elliot decision, the world’s currency of exchange – the dollar – is also endangered.
Should that happen the world economy is imperiled.