If you are ever feeling a little rough and could do with banishing the lingering echoes of the night before, a shave by a barber is your only man. Last week, deep in the Caballito district of Buenos Aires, I put my life in the hands of an octogenarian barber in a fantastically antiquated snip-joint called La Epocha.
There is something vaguely terrifying about a man with a blade two millimetres from your neck, even if this man has shaved the beard of Diego Maradona.
The photo above the ancient, freckled mirrors shows Maradona laughing as the barber, Claudio, lathers him up, before applying the knife.
If this carry-on was good enough for Maradona, it has to be good enough for mere mortals, so it was up with me onto the chair. Within moments, terror switched to comfort as the soporific effect of the hot towels took hold and Claudio took charge. Reassured by his grandfatherly smile, I practically dozed as he set to work.
I wondered how much this grandad had seen in his life and what his Italian father might have expected when he, like millions of other emigrants, arrived in Argentina to start a new life in the New World. Many of those immigrants were Irish and, today, their descendants are all over Argentina.
One of these Irish Argentinians is Patricia O’Shea, the owner of the wonderful Home hotel in the city’s hip Palermo district. Ten years ago, just before Argentina’s default and devaluation of its currency in 2001, she was working as a waitress in Tante Zoé’s in Temple Bar, having emigrated from Argentina to Ireland in the late 1980s.
She came back to Argentina after the default ,with the money she had earned in Ireland. She explained tome that, after the default and the devaluation, it made sense to invest in Argentina again because the country was competitive.
The money that had left the country before the default – because it expected a default – came back. The price of all assets fell dramatically, new money gushed into the country and the economy grew rapidly – it has grown in each of the last ten years since the default on 2001.
Now, before you think I am suggesting that we use Argentina as an economic model, snap out of it – Argentina is corrupt and it is extremely difficult to do business in.
But the point is that the default and devaluation of the currency didn’t cause the economy to get worse. It caused the economy to recover because people like O’Shea invested after the default, not before it.
There is life after default; in fact there is vibrant life. If we walked away from the bank debts in Ireland – debts that are not ours to pay – but continued to pay our sovereign debt, basic economics tells you that the economy would be stronger, not weaker; the balance sheet more robust; money that had left the country would come flooding back.
Having watched the EU again deal with Greece last week by preaching the medicine of no real debt restructuring – more debt and more austerity – it seems the lessons of Argentina from 1998-2002 have been lost on everyone.
We in Ireland are making exactly the same mistakes as the Argentinians made back then. During this period, I was working for an investment bank investing in what are known as emerging markets, so I spent a lot of time watching events in Argentina, Uruguay and Brazil – and the parallels with Ireland today are disturbing.
After the Russian and Asian crises of 1997-98,most of the emerging world briefly, yet dramatically, devalued their currencies and restructured their debts in order to recover.
But Argentina did not. It was the star pupil of the IMF that had been set against debt restructuring and devaluation. In short, Argentina did everything the IMF told it to do.
Instead of defaulting and devaluing, Argentina opted for a hard currency peg – one-for-one convertibility with the US dollar – and austerity. The result, of course, was a recession.
Yet, as unemployment rose and retail sales fell, from 1998 to 2001, the IMF constantly praised Argentina for its fortitude and for staying the course, taking the medicine and knuckling down.
This is precisely what is happening in Ireland.
The failed IMF blueprint from Argentina is being deployed again here by the so-called ‘troika’ of the IMF, EU and ECB. And it will end in the same mess.
To cut a long story short, the world looked at Argentina and concluded that the people couldn’t stomach much more of this austerity and couldn’t pay the debts that had been incurred in the good times, because the policy of austerity was making the economy shrink. In contrast, just across the border, Brazil was rocking after its devaluation. So, as Argentinian risk rose, interest rates rose.
Argentina was being punished for being a star IMF pupil, but Brazil was being rewarded for being – in the IMF’s eyes at least – a delinquent! This is exactly what is happening in Ireland, Greece and Portugal now- we are being punished for doing everything that is asked of us. In contrast, Iceland is recovering, after having given the bankers the two fingers.
In the end, Argentina defaulted on its sovereign debts, not because it wanted to, but because it had to. It is sobering to think that Argentina did everything the IMF wanted it to do and, in the end, its debt to GDP ratio was only 51 per cent.
We are doing everything the troika is telling us, but our debts are at least twice that.
Argentina not only defaulted, it broke the convertibility with the dollar – and the currency collapsed. People with assets lost out because asset prices fell. People with savings lost because their savings, which had been equivalent to dollars, were now in the devalued peso. People with debts gained because their previous dollar debts were cancelled and turned into peso debts.
In fact, this is exactly the opposite of what happened here when we joined the euro.
When that happened, people who had savings in the weaker currency, the punt – which had devalued five times in its existence – suddenly got these savings revalued into a much harder currency, the euro. So savers in Ireland got a huge subsidy by joining the euro, while debtors got hammered.
So what happened in Argentina?
As prices fell, new money came back into the country. O’Shea, for example, left Dublin and returned to Buenos Aires in 2003 with her own and some Irish investors’ money and opened Home. She would never have done that before the default cleared the air.
The place is booming. It opened in 2005 and, by 2007, the ¡ber-hip Wallpaper magazine rewarded Home with the ‘best new hotel in the world’ award.
This is real wealth, created by the talents of real people. This talent, entrepreneurial drive and creative vision was liberated after the default and the devaluation. It had been strangled by the austerity that went before.
So there is life after default; in fact, defaulting makes good business sense. This is why we have a concept called bankruptcy, because it is good business to close what is bust and reopen anew. It’s called capitalism.
It is what you do after the crisis that is important. It is also crucial to understand cause and effect. In recent days, people have said that the default would bankrupt the Irish banks.
This is not true. What bankrupted the Irish banks is not defaulting on debt, but the previous reckless lending.
The default is not the cause of the problem, it is the consequence of the problem.
As I left Claudio and La Epocha, clean shaven and revitalised, it struck me that Argentina might wobble again soon, as it has allowed inflation to take off. But we know how to tame inflation. With too much activity, tighten money conditions, cut spending and the economy will cool down.
What caused Argentina’s crisis in 2001 was not inflation, but deflation. Similarly, today, Ireland’s problem is also not inflation, but deflation – no activity, no growth, high unemployment and too much debt. History tells us there is only one way out of this. Debts that can’t be paid won’t be paid.
The crisis comes suddenly, it passes, there are winners and losers, and we start again.
David McWilliams hosts the Dalkey Book Festival from June 17-19.
Midnight Cowboy.
Greetings from the only county in Ireland that voted NO on the second Lisbon Referendum farce, Donegal. In the past, even the future looked better. – Karl Valentin, 1882-1948, German cabaret comedian, clown and film producer, scripted together with Bertolt Brecht (Mysteries of a Barbershop) in the Weimar culture – Some considered him a ‘German Charlie Chaplin, so do I. Nazi’s were not amused of course, not a sausage, and they banned his work on poverty. A COERCIVE ACT! The results of the first Lisbon referendum were representative, not the coerced 2nd results, and…. Banksters and Lobbies dictate European policies… Read more »
Links:
MEP Schlyter Interview as ODF on bottom of page here:
http://www.corporateeurope.org/global-europe/blog/pia/2011/03/24/mep-lobbyism-main-reason-bad-policy
http://www.alter-eu.org/sites/default/files/documents/bursting-the-brussels-bubble.pdf
Travel Magazine
I anjoyed the storey to the barber except I usually shave each day and its safer .
The IMF said today in their report of the UK economy “if the economy experiences a prolonged period of weak growth and high unemployment” “some combination of the following would need to be considered: (i) expanded asset purchases by the Bank of England (quantitative easing) and (ii) temporary tax cuts. Such tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers” Clearly the sovereign debt problem in Europe has left some countries (pigs) vulnerable to massive debt as a result of baling… Read more »
( Resplashed Again from last page ) Listowel Races The Battle of Waterloo was won by the herocism of the Duke of Wellington , an Irish Man whoes blood lines hailed from Kerry.However it was the Rothscilds who made all the money because they financed the war on both sides. I remember going to the Listowel Races years ago and on entering the course one goes across a bridge over a river where young boys/ men stand in the water waiting for the punters to throw them coins .Some would fall into the water but wherever the coins went the… Read more »
Quote from above: ‘Now, before you think I am suggesting that we use Argentina as an economic model, snap out of it — Argentina is corrupt and it is extremely difficult to do business in’ So why the title???? That’s similar to using the title ‘Ten things I would do as Taoiseach’ and then referring to the urgings of those to go stand for election as being like a thousand Mrs. Doyle’s… John, I agree with the travel magazine comment. In yesterday’s SBP travel article in Agenda [Nicola Cooke], it is noted that the Peron museum omitted negative publicity during… Read more »
Dorothy,
Just so you know, I never write the titles, the subeditors in the paper do that. The rest of the article is all mine…for good or ill! The same goes for “the if I was Taoiseach” headline which pissed me off enormously. I had nothing to do with it.
Best, David
DJ pointed out in the previous blog: The article fails to mention that argentina would have been screwed only for one thing. The price of agri goods such as Soya and beef which the argies are no1 exporters have absolutely boomed in the last 10yrs. So the argies can export those goods in dollars and exchange for cartloads of pesos. The timing was one massive stroke of luck. Ireland size, position, resources and trading partners make their case extremely different and would make it much harder for them to default Besides that very pertinent point, the Argies were able to… Read more »
Looking at the CIA factbook figures for crude oil consumption – the drop in Irish consumption is slightly more then the Argentina default period on a % metric and slightly less then when the Cuban economy collapsed after the USSR left the building. But these are 2009 – 2010 figures – the continued GNP drop will put us in Cuban territory and beyond. We seemed to have moved from a peak of 200+ thousand barrels in 2006 to a estimated 160 ~ thousand barrels for this year putting us back to 1998 – 1999 Are these figures correct more or… Read more »
[ Now, before you think I am suggesting that we use Argentina as an economic model, snap out of it — Argentina is corrupt and it is extremely difficult to do business in. ] Oh yeah, and like….Ireland is not ? Tribunals, Brown envelopes, Pravda, The Financial Regulator playing golf with the bankers, etc….. We should investigate “best practices” from countries that are better at producing success with finite resources. Denmark, Israel, Finland, Taiwan, The Netherlands, Korea, Singapore. And all of these societies have an intolerance for corruption that does not compare to the widespread tolerance of funny business. And… Read more »
David Here is something worth investigating, if you have time. People from the PIGS block who moved their businesses to Argentina, since the crisis first broke, on the basis that success is more of a possibility in South America. Yes, there are cliques and elites in South America, but there are some cities between the Buenos Aires and Sao Paulo where there is entreprenuerial development in recent years. Argentina is not a business freindly country – at least not for small business. Peronism which still exists in it’s institutions is proof of that. I do not think that we are… Read more »
Sensible article, according to wikileaks of last week, it appears the ‘troika’ may not be the ‘troika’ after all, but the ‘gang of four’, our ‘wreckedAngle’, IMF, EU and ECB AND NOW, the American embassy. Apparently Mary Hanafin and Eamon Gilmore and a host of Irish politicians have been holding up queues trying to get into the embassy:) So Gilmore was telling us he was against Lisbon 11 and telling the embassy he was in favour of Lisbon 11. No, before you ask,a uaisle, Enda didn’t ask Obama about Geithner, or if Obama could ask Geithner to uturn on burning… Read more »
Here is an article on the crisis, by an American, who quite obviously has a lot of scepticism of both Wall Street and Washington. Anyway the interesting refers to the situation on the ground in Greece. [ Late developments from our contacts in Greece tell us the bankers, EU and IMF had best forget about collateralizing debt (Mnemonic). The entire country is now aware of what the bankers are up too. What put the frosting on the cake was that a publication in the Netherlands said as a result of the secret deal, the Turks would get a Greek Island… Read more »
Geithner is just another puppet like Obama is. He banned the bonfire of the bondholders because that’s what their master in Wall St. IMHO I now believe that in Countries where the US has a debt exposure will not be allowed to default! Greece seemed to be doing everything wrong and yet in-spite of them the ECB is coming to the rescue.
David.
The AIB n BoI n Anglo debts ought to be honored by those banks. And if they cannot fully repay the debts they and their creditors come to an arrangement.
Which is what has happened.
The debts transferred over to the Irish people.
Thus the banks debts are no longer the banks.
So the banks will never pay their debts, so the article’s conclusion holds to the Irish banks.
They cant pay their debts so they didn’t pay their debts, their debts were transferred over to the Irish State.
Michael Hudson has the lead article on Counterpunch today on the Greek crisis
Will Greece Let EU Central Bankers Destroy Democracy?
http://www.counterpunch.org/
Assets are the key in Ireland. Irish people traditionally have an extremely strong attraction to property. Why then do the majority of Irish people not want to follow Icelands example or stand up to the ECB? Fear of losing their property value. The majority of people in Ireland are concerned about the country and the 15% unemployed. Just they are clearly much more concerned about the value of their property. Edward Kennedy in 2008 said that Ireland should be able to get out of trouble quickly due to being a samll country and solidarity etc. It seems that he didn’t… Read more »
Here is the thing. If Ireland lets real estate prices and rents fall, it is obviuos that people are going to come and set up homes and businesses and create jobs. You can also do this without devaluation. Make legislation, 1 person max 2 properties and make very clear and transparent sales price information rules to prevent price fixing. The Irish governement now has massive control over realesate prices simply through NAMA. They can start selling properties at low prices with these resrtictions in place. Alternitivly we need to start talking about leaving the Euro. The ECB is so obvioulsy… Read more »
If I am to predict what would happen, I would tend to agree with Simon Johnston ex-chief economist IMF http://www.baselinescenario.com when he said in early 2009 that the home Irish real estate lobby, ECB and IMF together really are too powerful for the right and fair decisions to be taken in Ireland. He also predicted that the youth would just emigrate instead of fighting.
So the Irish real esate lobby (incl on a small scale all real estate owners) needs to be convinced to think of Irelands future instead of their own short term profit. This could change the balance.
An interesting, if somewhat extravagantly expressed, view, from Howard Kuntsler
http://kunstler.com/blog/2011/06/the-creeping-nausea-of-american-exceptionalism.html
Not sure what the point of this article is – or indeed any of the fantasies which litter the comments. Of course there is life in Argentina after the last default – and until the next default. There was life in Japan after the atomic bomb. None of this is relevant to Ireland, which is a member of the Eurozone. All major decisions concerning Ireland which could be considered to affect the stability of the Euro will be made necessarily and exclusively at European level. That is the lesson the new Irish government was forced to learn very quickly. There… Read more »
“When that happened, people who had savings in the weaker currency, the punt — which had devalued five times in its existence — suddenly got these savings revalued into a much harder currency, the euro. So savers in Ireland got a huge subsidy by joining the euro, while debtors got hammered.
David are sure this bit is correct?, I seem to remember my new exchanged Euros had feck all buying power!
Can you make a prediction,
Will there be an Irish Default?
When will this be most likely to happen?
We must try not to be so insular in our views with regards to the economic future(s)that await us. In truth the Greek, Irish and Portugeese debt problems are mere minnows on the EU fiscal stage. Italy, Spain, Belgium, and even France are deeply indebted and have serious fiscal/economic structural weaknesses. The real war going on here is between the markets and the politicos. If the markets win, then the future of the Euro is doomed. If the politicians win then national sovereignty will be ceeded to a finance/banking backed political stage show. The same war is being waged in… Read more »
http://www.independent.ie
Nepotism @ it’s best !
David, I found evidence of prices falling over the weekend. Had a pint of Guinness in west Clare on Sunday for €3.55. This is the lowest price I’ve paid for a pint in well over a decade. This is good news.
By the way, I’ll never drink Bulmers. Don’t like cider at all, and anyway, it was the drink of choice of the sheeple during the celtic tiger era.
For the record, that pint I had was the nicest in a very long time. I would have liked to have had more than one, but I wasn’t able to.
Just wondering would it not be cheaper for Merkel to instruct the ECB to issue a law suit against all the parties involved in fabricating Greek macroeconomic statistics to allow Greece into the EU.
I am surprised that none of the taxpayers of DE/NL/FI/FR/LUX/AT have not decided upon this route yet.
We badly need a class action suit against the directors of Anglo Banglo in this country, for fudging the final accounts of anglo as a private sector entity that famous September week when Permo loaned anglo 8 billion plus.
On David’s article… The crisis comes suddenly, it passes, there are winners and losers, and we start again. I would dispute your last sentence because this multilevel crisis is of a different kind and goes much deeper. Perhaps, the choice of words, winners and losers, and the conclusion, we start again, is the reflection of your deep rooted Keynesian conviction? The geo political implications of this currency war are enormous and hardly predictable. One aspect is what I call the ‘Dragon Osmosis’ and try to bring to paper at the moment. The failure of the political sphere to stop this… Read more »
I see a lot of very learned comments. However We read this Blog became we believe that David is right and that the Judgement day (Default) is coming.
I have got out, earning a good salary in the sun and I will be back after the default. I just couldn’t sit around and get into more debt while the politicians dithered.
For all of you do something about it or get out too.
For David it is a nice little earner.
Good Luck to Him.
David has changed his stance saying now that we must default on bank debt while paying the sovereign. I say its too late for that the banks have been financed by the ECB and the Irish government. If he means not paying senior bondholders the remaining 35 billion that is up to the ECB/EU/IMF not us. In any case the bank debt is now the same as sovereign thefre is no difference. With our sovereign debt likely to be 220 billion by 2013 the 35 billion of senior bonds is neither here nor there. Austerity is our future, if we… Read more »
Default is like a Divorce and Austerity is when one partner denies the other a normal conjugal right to the partnersip.There is a point when the abused partner who is denied their benefits finds another opportunity and a new relationship begins . Default and austerity only breed another breeding ground for the inflicted to move to have fun .So it is inevitable .Only for now there is a choice .Exercising that choice properly is when the original partners may part amicably or otherwise. Thus a planned Default by consensus and agreement and signed is the best result. After that welcome… Read more »
This is not only Off Topic, but its very Tangential also, but I believe this TV programme shown recently is fascinating.
“At the heart of the film is one of the most famous scientists in the world – Bill Hamilton. He argued that human behaviour is really guided by codes buried deep within us. It was later popularised by Richard Dawkins as ‘the selfish gene’. It said that individual human beings are really just machines whose only job is to make sure the codes are passed on for eternity.”
http://www.bbc.co.uk/programmes/b011x721
I have a friend who is from Argentina and who was there when it defaulted . He remembers it as a bad time . When I asked him about it he said that ‘ You have to underatand that people there get paid by the month . For one week after you get paid the shops are full and everybody does there shopping in this one week . The other three weeks the shops are empty ‘ They defaulted just before everybody was paid which led to panic and people storming banks and what not . People were not just… Read more »
Gilmore is nothing but a traitor himself
A political opportunist, not just by his political history, but what a joke when you remember him calling Biffo a traitor.
http://www.independent.ie/national-news/wikileaks/gilmore-took-opposing-views-in-public-and-in-private-2662663.html
The entire established political class in Ireland is infested by Liars.
No surprise really, this is what politics has turned into once captured by Lobbies and their power, they groom two faced people like Gilmore and the rest of this despicable bunch of traitors who sell all of us out to Banksters in a heart beat.
BEWARE
DANGER
MOON WOBBLE
HAS ARRIVED
A humourous view on the recession from the US. You can print it off and stick it to the outside of the Dundrum Centre or Liffey Valley….it will probably be quickly taken down.
http://www.theonion.com/articles/consumers-say-recession-changed-way-they-blow-payc,19691/
Here is another suggestion for the US boot licking idiots in Government to reduce expenditure by reducing the amount of people with a right to social wellfare. Florida department of children and families pays currently 100,000 families wellfare. Gouverneur Scott signed a new law, which will be enforced from July 1st. All well fare recipients who take back their application for state assistance, will NOT be required to agree to blood urine and hair samples. You require social well fare? You will be tested for drugs, mandatory. Had a joint? You will be cut of well fare for 6 months.… Read more »
David the dogs on every boreen in Ireland know what you say to be true. But the Gobeens in Leinster House still have cap in hand to Wall Street, IMF, ECB & EU!
They are still sitting in the posh room, pretending they know best and have notions of grandeur above their ego & brain cell status!
I wonder what the catalyst will be when it finally comes to wake them up!
I hope you are enjoying the sun too?
David writes a pretty picture again of his exotic travels and makes us dim witted paddies yearn for the entrepreneurial drive of the ‘real people’ of Argentinian. However David McWilliams is to economics as Dan Brown is to history. Take a hint of truth and wrap it up in intrigue and throw in some beautiful scenery and hey presto you have a great read. Even better, you have a great read that people buy by the bucket load! But reality is absent from Davids musings. Default and devaluation is not a better option for three reasons. 1. Yes, devaluation does… Read more »
Les Cargo Logistics
http://www.independent.ie/business/irish/french-stance-puts-cut-on-bailout-in-jeopardy-2668744.html
Hasta La Vista
http://www.irishtimes.com/newspaper/finance/2011/0608/1224298574283.html
Thomas Woods speaks on Nullification at Nullify Now Los Angeles http://www.youtube.com/watch?v=qp5hMiTS2dg
You wont be buying this guy dinner as you win. End of story. On a different note did anyone see the sluts learning how to give head on TV 3 last night? No wonder Vincent Browne looked flushed. Did any woman, or man for tht matter sit around and have someone teach them oral sex? This is a new low for Irish television. And would any normal i.e. 99% of Irish women, even want anal sex? Hetro guys want it more than women. hetro guys even want their women to do it to them more thatn women. Total sophoric bullshit… Read more »
Rep Dennis Kucinick….and so say all of we… now that the Irish Republic has been doled out to the ECB/IMF and the Irish banxter thieves and their politico fixers
http://www.youtube.com/watch?feature=player_embedded&v=n0gjVjyUlro
Commodity Scam update: AMIS AMIS, Agriculture Market Information System, is the latest buzz coming from the G-20 club. More than four years after the food price shock, they now came together to jabber about food security as a priority. Right, someone woke up I guess. We have many MIS, and this will be another one, but firstly, it will take a long time before this is established and working as desired, if at all, and secondly, they miss the point. To deal with the real problem in this sector you have to brake up the power of the cartels that… Read more »
Ah yes, some much of this all leads us back to Olli Rehn…. I just wonder in five years time, will Olli still be lecturing people on the need for taxpayers to absorb the losses of the banking sector ? Will Olli blame the people for the property binge, and call for the bankers to bailed out ? Why five years time ? Well, it seems that in Finland, thanks to the pro-banker interest rated (money for nothing)…there is a housing boom. In a country with a declining population, harsh miserable weather, lots of space and Mother Russia for a… Read more »
Ireland regrettably struggles to be itself not to mind something else.
My favorite quote of the week: ….Economics is not a science, it is a fundamentalist religion with equations, which make it sound scientific. As Joan Robinson used to say, ‘those who understand economics are very dangerous because by embellishing all their lies with equations they make sure that nobody can challenge them’. So the only reason for studying economics is to stop economists from deceiving us…. Yanis Varoufakis, November 15th, 2010 in The Vibe Yanis Varoufakis is Professor of Economic Theory in the Faculty of Economic Sciences of the University of Athens. He has taught at several British universities, including… Read more »
Interesting article yet again from Noam Chomsky. The ‘Great Moderation’ and the International Assault on Labor. A decade ago, a useful word was coined in honor of May Day by radical Italian labor activists: “precarity.” It referred at first to the increasingly precarious existence of working people “at the margins” — women, youth, migrants. Then it expanded to apply to the growing “precariat” of the core labor force, the “precarious proletariat” suffering from the programs of deunionization, flexibilization and deregulation that are part of the assault on labor throughout the world. By that time, even in Europe there was mounting… Read more »