Those who maintain that in the absence of a global depression governments and the jurisdictions they administer do not go bankrupt – not, at least, in the barrel-wearing, down-and- out sort of way – do not remember Argentina.
In a 2008 edition of Der Spiegel, the magazine reported, “The signs of looming national bankruptcy are plentiful, and bankers in the Uruguayan capital of Montevideo know them well. In late 2001, they were the first to see the coming crash in Argentina. Men traveled across the Rio de la Plata, from Buenos Aires to Montevideo, carrying suitcases filled with US dollars. They stood in long lines at the city’s banks, depositing the contents of their suitcases into accounts and safe deposit boxes there. Uruguay is South America’s Switzerland, a safe haven for money in times of crisis. No one asks about where the millions come from.”
The article continued: “Once the Argentine businessmen had transferred their dollars abroad, the second phase of the collapse began. The Argentine government froze all bank accounts, capping the maximum amount an accountholder could withdraw at only $250 (€198) a week. Small investors, those who had left their money in the banks, were the hardest hit. Tens of thousands of desperate citizens stormed the banks, and many spent nights sleeping in front of the automated teller machines.”
Finally came the denouement of that country’s humiliation: “The last phase of the downturn began in the Buenos Aires suburbs. After consumption had dropped by 60 per cent, young men began looting supermarkets. In December 2001, 40,000 people gathered on Plaza de Mayo in front of the Casa Rosada, the presidential palace. There, they banged pots and pans together day and night, until an unnerved President Fernando de la Rúa fled by helicopter.”
Reach back even farther into history, if closer to home (at least culturally), and we may recall the economic wreckage of post-World War II Britain, which had to borrow the equivalent in today’s dollars of $150 billion from the United States just to keep the lights on, cops on the payroll and hospitals open. The Brits have only just paid back the Yanks the final installment of the loan.
In fact, national bankruptcies are a far more common occurrence in the modern world than many suspect – made all the more chilling by the thorough devastation they wreak on the afflicted economies.
Money’s not worth a plug nickel for anyone (except, perhaps, for those who had the foresight to move their cash to offshore, safe havens before the collapse). Schools and emergency rooms shut down with alarming speed. As for public pensions, you can forget about them altogether.
And because societies are vastly more complex and intra-dependent than are individuals, a jurisdiction can take years, even decades, to crawl back to some semblance of solvency.
Anyone who has endured a personal bankruptcy knows what it’s like to have a trustee like Price Waterhouse tethered to his ankle. But these guys are guardian angels compared to the dark minions who ply their trade at the International Monetary Fund.
It’s lamentable (though not surprising) that, in this run-up to the September 22 New Brunswick election, almost no one has uttered the ‘B-word’ in relation to the province’s dreadful fiscal shape.
It appears we live in a perpetual state of denial, expecting to make no hard choices, to undertake no risky business (can you spell s-h-a-l-e gas?) that might replenish our collective coffers, and yet always expecting fine, fat, grass-fed chickens in our pots at the end of the day.
The New Brunswick Business Council – a collection of demonstrably successful heavy-hitters, whose membership roster includes names like Oland, McCain and Ganong – made headlines this week by challenging the province’s political parties to drop their usual talking points and talk plainly to citizens. What, it demanded, are these political hopefuls going to do to clean up the mess that is New Brunswick’s financial condition?
The Council suggests a temporary hike in the HST and radical surgery on the spending side of the ledger. To be sure, the measures it prescribes aren’t nice, comfortable or easy. But the alternative is obviously far worse.
At least these folks remember Argentina.