Thursday, 28 August 2008

The United States of America is the Next Argentina

There is perhaps no better analysis than Reinhart and Rogoff's on the history of sovereign defaults; and, as such, Reinhart and Rogoff's paper was ideal reading material when traveling between the US and Argentina , for the sovereign defaults that happened in the past to Argentina will soon be happening to the US .

But a US default will make Argentina 's debt defaults pale both by comparison and consequence. The US , unlike Argentina , is the world's largest economy, the issuer of the world's reserve currency and the world's largest debtor—and a default by the US on its debt will shake the very foundations of our increasingly fragile global economy.

The US economic debt is not a trivial thing. Something's got to give and relatively soon. The crisis can be postponed as US officials fudge economic data regarding inflation and GDP growth but his cannot solve the underlying problems.

[Posted at the SpookyWeather blog, August 28th, 2008]

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