Posturing with a Porteño

I just received a three hour history lesson from a Porteño which slowly deteriorated into the declaration that Argentina should default on its debt and join a unified Latin American entity — let’s call it the United States of Latin America — or maybe los Estados de Chaves y Morales.

Esteban is a thirty-one year old graduate of the University of Buenos Aires, the top university in Argentina, who has been working the front desk of Hostel Estoril for the last two years — obviously, the job market in Argentina is tough. I approached Esteban for a restaurant recommendation. I wanted to know a place where he lunches on a regular basis and how to recreate his experience — to momentarily be an Argentine. I wanted to know what time he gets there, what he orders, what he does while he dines, what he eats in the morning and how he marinates after. Understandably, he found this to be an odd but intriguing question. We really got into details. I found out where he would approach the restaurant from, and what he would do for the rest of the evening. Esteban turned out to be extremely knowledgeable and my question turned into a history lesson of the city and different neighborhoods, along with various walking routes that he recommends. He insisted that I take the train north to Vicente Lopez, so that I can explore his childhood neighborhood — one that he promises is  a charming and authentic, tree-lined, upper middle-class BA community. I am going to take the train when I wake up, explore the neighbordhood, and arrive at Orlitos around 14:00. I will immediately order a licuado (a juice concoction, he prefers a mixture of orange and peach.) I will then order an omelet of my liking and follow it up with a panqueque for desert. A panqueque is similar to a crepe and he recommends topping mine with dulce de leche or strawberries, depending on how lethargic I want to feel. Of course, I have to continue walking so that I am ready for a submarino at 17:30 — a cup of sizzling milk seasoned with an entire chocolate bar.

The history lesson was fantastic, the restaurant recommendations appear to be superb and I have an overwhelming amount of streets to wander. Esteban had warmed up to me and I started asking him progressively more difficult questions. I talked to him about UBA and his print production major. We moved on to the tough job market and Cristina Fernandez de Kirchner. Then, I laid the bomb on him and asked him where he optimistically believes Argentina’s economy will be in 20 years. His answer was terse: ¨Argentina’s debt is a sham¨. I asked him to elaborate: is this because it is a remnant of past militaristic governments, because it is a hole to deep to realistically climb out of, or because Argentinians machismo is the gift to earth’s women?

Esteban deferred and asked me if I had seen the documentary ‘Zeitgeist’ — an ambitious film that apparently explains all the worl’s issues in three distinct acts: religion, 9/11 and the banking system. Basically, Esteban didn’t care to back up his Argentinian prognostication and wanted to talk about America’s problem — of which there are plenty. I was patient and actually enjoyed most of what he had to say, but I wanted to talk about Argentina. After a pause, I finally returned to what set him off on his stock rant and asked him why ¨Argentina’s debt is a sham.¨ Unbelievably, he returned to another documentary: ¨America: from freedom to fascism.¨ America was once again the center of contention. Another hypothesis I found intriguing: America’s income taxes are unconstitutional. This is actually something to think about and something I would like to research. At the very least, we certainly have strayed quite a ways from our nation’s founding principles — while at the same time, obviously slaves are not 3/5 of a person and times have changed.

Midnight struck and Esteban’s shift ended. Esteban left me with no substantiation of his claim.

—– WARNING! RAMBLING ECONOMIC MUSINGS ENSUE —–

—– 2nd amendment, truly, this became a cluttered thought experiment that I performed for my own benefit. I wanted to document my ideas and thought it would be better to make them public than simply e-mailng them to myself. There is always the extremely unlikely event that someone might find them interesting. You probably don’t want to continue reading. —–

However, he did send my mind reeling and I started thinking about what would actually happen if Argentina or any other nation defaulted on its debt — not simply believing that everything would be as peachy as 2002.

Obviously, it should be hard for any country that defaults to borrow money from other creditors. What incentive is there to give money to someone who you don’t think will pay you back? What type of exorbitant interest rates should you charge someone with this history?

First, consider the situation when a country has a trade surplus, such as Argentina. If this country defaults on its debt, other nations would probably continue to exchange physical goods, because they contain intrinsic value and don’t pose the same risks of ‘default.’ However, a country could decided to ‘punish’ the defaulting nation by refusing to trade with them, but that would also harm their own well being and would only be done if they thought their refusal to deal had a reasonable chance of motivating the defaulting nation to resume their obligations. The only nations that would have any chance of strong-arming a nation back into its obligations are ones with massive economies or those whom are major trade partners. In Argentina’s case, these would probably be the United States, Brazil and China.

Another liability for a defaulting nation is that others might decide to try and claim their due through militaristic might. This would be the case of Argentina defaulting on its debt and the United States, Brazil or China retaliating by sending in troops and annexing what they deem to be a fair amount of territory or commodities. What if America eyed Patagonia, Brazil wanted all of Iguassu falls and the vast soy fields in northern Argentina, and China wanted to cosy up to its ever-increasing trading partner in Chile and seize the resources in western Argentina’s portion of the Andes? If these nations saw no diplomatic means of reclaiming their dues, why wouldn’t they at least consider forceful appeasement? If UN opposition was overwhelming, why not multilaterally decide as a cohort of lenders how to divvy up Argentina’s stock and put this plan into action using force, or the threat of force? Why do I ask so many rhetorical questions? Blogging is such an ego high. Humans are bizarre. Why are you still reading this?

Now, let’s ignore the millions of more plausible, but less interesting alternatives, and move on to the case where a defaulting nation has a trade deficit. It’s hard to imagine in the short term this country maintaining its standard of living. Imports will fall to match exports, unless they are able to secure loans with exorbitant interest rates, and thus sending themselves back on the path to overwhelming debt.

So say this nation doesn’t bother receiving loans and attempts to maintain their economy through trade of physical goods — effectively ignoring their currency and resorting to a bartering system. The game theoretic scenarios in this situation are pretty interesting and I might explore them in a subsequent post.

I am absurdly tired and will cop-out by concluding this post here — as a jumbled mess of oversimplifications that leaves me with at least one intriguing problem: if a disjointed entity, such as a country with many residents, participates with other entities in a barter and trade system, how could a government act to maximize the amount of goods this disadvantaged group is able to secure. I am sorry for such an academic and incomprehensible problem statement. I will clarify.  Say a country is used to importing a certain amount of goods. Now, assume they are suddenly put into the position where instead of being able to borrow freely to consume whatever they want, they default on their debt and their currency is not worth face value — making it worthless, to some extent. They now are in a situation where they barter and trade with other nations. This would include Argentina trading 10 cows worth of beef for 1 computer from China. With a proper currency, these transactions can be carried out effortlessly by individuals. Markets can effectively set prices because there is no limit to a nations borrowing and what they consume. In this new environment, citizens of this disadvantaged nation will have trouble trading freely. Moreover, not as many goods as are ‘needed’ will be imported, so individuals will have to scramble to secure their due. How would it be decided which goods wouldn’t be imported. This would be determined by individuals who produce goods and barter. However, without the benefits of a proper currency, these people would have an incentive to selfishly secure goods at below market-level prices. This would reduce the total amount of goods the country could import, based upon pre-default prices. The question is, what type of institution could maximize the amount of goods this collection of individuals imports and how could they go about doing so. I have some ideas about this, but I’ll leave those for another post.

So you know, this is an unusual post and was mainly for my own benefit. This is the whole stream-of-consciousness thing my tag-line refers to. Thinking by writing can be helpful. I did it very much when I couldn’t sleep as a teenager. I probably should have tied Esteban back into this. Oh well.

Finally, I have been very busy and have done some pretty spectacular things thus far in BA. I will give you an update on my time abroad tomorrow. Thanks for bearing with me and my craziness.