We have all heard that the U.S. economy cannot go the way of Argentina in 2001 when foreign investors expressed lost confidence in the government and refused to roll over maturing short-term government bonds. Money fled the country as foreign currency reserves dwindled. A balance of payments crisis facilitated by investor panic led to the very outcome investor’s feared: the world’s largest ever sovereign bond default, a collapsing currency, and hyperinflation.
That can never happen here in the U.S., we are told. The U.S. owes its foreign debts in its own currency. U.S. lenders will never shoot themselves in the foot by allowing a dollar debt and currency crisis to develop because they depend on the U.S. for trade to support their own domestic economies; foreign central banks will continue to step in for the U.S. where the IMF failed Argentina. They will keep buying U.S. debt forever no matter how large U.S. fiscal deficits become or how much bad debt the Federal Reserve takes onto its balance sheet.
But this no more than an argument that an exact replica of an Argentina 2001 debt and currency crisis is unlikely in the U.S., and of course that is true. But that does not mean that a related, equally unseemly but fundamentally different catastrophic result may follow from similar causes and triggers. Evidence abounds that the U.S. is trapped in a cycle from which a kind of Argentine style default with U.S. characteristics is all but inevitable.
Here we take a deep dive into the macro economics of the Argentine crisis—GDP growth, consumption, investment, inflation, industrial production, unemployment and a dozen other details of the Argentine economy in the period before it collapsed at the end of 2001. We compare the same macro economic measures during the U.S. economic crisis that started in 2008.
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