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The warning signs are all there. The objective data tells us that most of
the West is bankrupt in the same way that the objective data tells us that Argentina is bankrupt. Most of the West has borrowed far more than they’re credibly able to pay back; the U.S., France, Spain, etc. all have to borrow money just to pay interest on the money they’ve already borrowed. In light of this data, it’s imperative to make sure that you prepare. This article explains the situation further and outlines how you should go about making preparations to protect yourself.
The above introductory comments are edited excerpts from an article* by Simon Black (SovereignMan.com) entitled While Argentina celebrates, government quietly slides towards default. Again.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Black goes on to say in further edited excerpts:
Argentina was one of the wealthiest countries in the world a century ago – strong and stable with vast natural resources but things change…[and] the objective data tells us that Argentina is bankrupt… in the same way that the objective data tells us that most of the West is bankrupt.
Argentina has made a long habit of defaulting on their obligations; it’s happened 7 times in the last 200 years and now, just 13 years after their last default, there’s serious risk they’ll do so again.
Back in 2001, the Argentine economy all but collapsed. In a matter of days, the country went from mild recession to full-blown economic crisis. The currency went into freefall. Police were out in the streets shooting protestors. Unemployment and crime rates soared overnight and the nation defaulted on its debt—a record amount at the time.
Since then, they’ve worked out arrangements to gradually repay most of the bondholders about 30 cents on the dollar, and they’ve already started making interest payments but a small minority of bondholders refused that offer. They’re called ‘holdouts’ and they want more.
These holdouts have now been handed a major legal victory from none other than the US Supreme Court (the bonds were written under US law, so technically US courts have jurisdiction). The decision prohibits Argentina from making any further interest payments to the bondholders they’ve already agreed with until they reach a settlement with the holdouts.
The last payment was due on June 30, so Argentina is already past due. They have a 30-day grace period to resolve the matter, otherwise the nation will be in default once again.
Candidly, there’s no good way out of this for Argentina.
- If they reach a deal with the holdouts, it will take a nasty chunk of money out of their reserves.
- More importantly, the RUFO clause (Rights Under Further Offers) means that if Argentina DOES reach a settlement with the holdouts, everyone else can line up for the same deal, and that could cost north of $100 BILLION, over 20% of GDP.
- They simply don’t have the money yet, if they don’t reach a deal with the holdouts, they’ll be in default in just three weeks’ time.
Either way, it likely means a fresh round of desperate measures—capital controls, price controls, and credit controls.
Most people in the country are too distracted with the national team’s World Cup performance to notice but ignoring the problem doesn’t make it go away. Sooner or later reality bites.
Conclusion
It’s imperative to make sure that you’re not tied to a single system, a single bankrupt nation.
If you live, work, bank, invest, own real estate, operate a business, etc. all in the same country, you are essentially betting your entire livelihood on that one country and, given the data, that’s quite a risk to be taking.
- Spreading a portion of your assets and savings across healthy jurisdictions substantially reduces this risk.
- If the worst happens – default, capital controls, price controls, bank failures, substantial inflation, etc. – then your life won’t be turned upside [down] on the whims of some politician.
- Even if none of the darkest scenarios come true, you won’t be worse of for having taken these steps.
What’s paramount is to prepare and have options before you need them, and not end up scrambling when disaster strikes. At that point, it will be far too late.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.sovereignman.com/trends/while-argentina-celebrates-government-quietly-slides-towards-default-again-14676/ (© 2014 Blacksmith PTE LTD – All rights reserved)
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