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Venezuela Refuses to Default, and Few People Seem to Understand Why

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Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#31

Post by nhaehnle »

Alupis wrote: post #9
dublinben wrote: post #4

Earlier quoted context omitted.

Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year. There is no such thing as "permanent" in the international debt markets. Someone will eventually be willing to lend you money, at the right price.

> Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year 15 years later (and arguably not in a much better condition than before). We shouldn't pretend a nation-state default has few/zero negative ramifications. > Someone will eventually be willing to lend you money, at the right price. You are right... but money gets a lot more expensive. It could very well be…

The real question is, as usual, what's the counterfactual in the case of Argentina? If they hadn't defaulted, would they actually be better off today? It's possible that, had they tried to avoid default at all cost, the lacking fundamentals would have locked them into a downward spiral. Sometimes, a default can be a liberating blow.

(I'm not saying that default was right for Argentina back then. The point is that you haven't presented any evidence that it was wrong, either.)

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#32

Post by AnimalMuppet »

krapp wrote: post #23
venomsnake wrote: post #21

Earlier quoted context omitted.

Iceland didn't default. They let their commercial banks die without intervention from the government. Also known as what the US Treasury should have done in 2008. If something is too big to fail - it must be killed immediately.

No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.

But you're moving the goalposts on this discussion. The question wasn't the impact on the global economy; it was the impact on the national one. So the Iceland example is directly relevant.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#33

Post by AnimalMuppet »

retube wrote: post #28
redstripe wrote: post #6

Earlier quoted context omitted.

Can you give some examples of where a country defaulted and was worse off? I think most recently Iceland defaulted and they seem to be doing alright - but maybe given it's size it doesn't really count.

Iceland has a population of 330k. I.e the size of a small back water town. Whatever they do has 0 impact globally.

See my reply below to krapp.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#34

Post by cperciva »

There's another possibility which wasn't mentioned in the article: Maybe the government is quite happy with the food shortages. They have used control of the food supply to reward their supporters and to punish their opponents; this gives them tremendous power, and why should they give up that power just for the sake of a few million starving citizens?

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#35

Post by roymurdock »

Alupis wrote: post #18
dublinben wrote: post #13

Earlier quoted context omitted.

The government of Argentina voluntarily took the position that they would not settle with the outstanding debt holders. They could have settled 15 years ago and regained access to international debt markets right away.

Doing so would not have made the situation much better. To an outside investor, Argentina is a lot more risky now that they've proven they're willing to default when things get rough. That kind of risk isn't impossible to overcome, but it's very expensive. For a struggling nation without a strong economy, foreign investments can be lifeblood.

Or a noose. Debt is a double-edged sword - it all depends on if it's structured in a reasonable fashion, and if it used in a productive manner that can pay down promised future payments.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#36

Post by gohrt »

cperciva wrote: post #34

There's another possibility which wasn't mentioned in the article: Maybe the government is quite happy with the food shortages. They have used control of the food supply to reward their supporters and to punish their opponents; this gives them tremendous power, and why should they give up that power just for the sake of a few million starving citizens?

Who are the supporters who are getting food, and opponent who are not?

The starving public aren't meaningfully pro or anti any faction in government, they are civilians trying to scratch by.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#37

Post by SilasX »

krapp wrote: post #23
venomsnake wrote: post #21

Earlier quoted context omitted.

Iceland didn't default. They let their commercial banks die without intervention from the government. Also known as what the US Treasury should have done in 2008. If something is too big to fail - it must be killed immediately.

No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.

Well, yes, American banks were able to threaten a lot more mutually-assured destruction so as to intimidate the government into continuation of their too-big-to-fail status.

Not sure how that's an argument in favor of paying the Danegeld though.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#38

Post by Alupis »

roymurdock wrote: post #35
Alupis wrote: post #18

Earlier quoted context omitted.

Doing so would not have made the situation much better. To an outside investor, Argentina is a lot more risky now that they've proven they're willing to default when things get rough. That kind of risk isn't impossible to overcome, but it's very expensive. For a struggling nation without a strong economy, foreign investments can be lifeblood.

Or a noose. Debt is a double-edged sword - it all depends on if it's structured in a reasonable fashion, and if it used in a productive manner that can pay down promised future payments.

> it all depends on if it's structured in a reasonable fashion

And the ability to structure reasonable debt is contingent on perceived risk to outside investors.

If Venezuela defaults and becomes very high risk, it's unlikely future debts will be favorable towards Venezuela, impacting Venezuela's ability to climb out of the hole, so-to-speak.

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#39

Post by mc32 »

dublinben wrote: post #4
Alupis wrote: post #2

If Venezuela defaulted on foreign debts, it will be very difficult (and/or expensive) to borrow again in the future. Venezuela is essentially hedging their situation is temporary (however temporary, temporary is), and having a good economic standing in the future may depend heavily on foreign investments (particularly since Venezuela is a petroleum based economy). Burning those bridges now could cripple Venezuela per…

Argentina had a record-setting default in 2001, and was able to reach a settlement to issue new bonds this year. There is no such thing as "permanent" in the international debt markets. Someone will eventually be willing to lend you money, at the right price.

Didn't some creditor hold-out hedge-funds fare better than those who initially settled for pennies on the dollar?

What was the resolution to that?

Re: Venezuela Refuses to Default, and Few People Seem to Understand Why

#40

Post by krapp »

SilasX wrote: post #37
krapp wrote: post #23

Earlier quoted context omitted.

No offense to Iceland, but the world economy is far less affected by the loss of Icleandic financial institutions than American ones.

Well, yes, American banks were able to threaten a lot more mutually-assured destruction so as to intimidate the government into continuation of their too-big-to-fail status. Not sure how that's an argument in favor of paying the Danegeld though.

>Not sure how that's an argument in favor of paying the Danegeld though.

Because not paying it would likely have tipped an already precarious global economy further towards depression, and that's not acceptable. So you pay the Danes off until you can actually kill them without killing yourself in the process.

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