I come from one of the only countries in the world that has moved from the ranks of the developed world to the less developed world. Argentina´s GDP per capita was higher and better distributed when I was born in the 60s than now. And as recent as 2002 the country was in the ropes with nearly half of the population living below the poverty line, the largest default in human history (3 times the size of Enron) and enormous unemployment. Yet, declaring default and mostly not paying its foreign debt turned out to be an incredible blessing to the country which saw most credit disappear and now lives in a mostly cash, equity economy. Argentina has very little consumer credit, very little foreign debt, very little national debt, very little corporate debt and very little mortgage debt. In Argentina cash really is king as the other forms of payment are practically non existent. So as the world goes into a US promoted credit crunch Argentina finally finds itself in a lucky position which is that of mostly having no debt isolated from global financial problems. In a way it is interesting that USA has been going around the world promoting credit as the cure to all problems using the IMF and the World Bank as its flagships and now finds itself drowning in its own medicine .  In the meantimeformer failed states such as Argentina discover that a mostly equity economy it´s much better in times of financial crisis than the indebtedness that the US was predicating for decades.  Especially when the country while in an all cash diet has been growing at 9% for the last 5 years.

PS: due to my many activities I don´t have time to research this subject but if you are an economist I would be interested in cowriting a study on all equity economies as I would be interested in studying the subject in depth.  I believe that mostly equity economies are likely to outperform heavily indebted economies as the USA in the future.

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Hasan on January 11, 2008  · 

Interesting view. Would you not agree that a society’s purchasing power is increased greatly by introducing consumer debt into it, though? Not an economist, but I do have my thoughts.

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Manuel on January 12, 2008  · 

Hi Martin,

I’m an economist by training (though not working currently on reports or studies like these). What you’re observing is true, but only on the current moment (and specially during the current global credit crisis).

In other words, Argentina is now better off than if it still had a huge debt to repay (some would argue that Argentina would still have to repay what it defaulted on, but that’s another story). But that doesn’t mean that the US didn’t grow more in the past years/decade thanks to their enormous credit resources (both internal and foreign, like China). In other words, if the US had limited itself to cash, equity or asset driven growth, its growth would have not been anywhere near what it has experienced in the last years/decades thanks to the credit fuel it has run on.

You have another example in Spain, where for the last 10 years it has almost been advantageous to get in debt at all levels (personal, mortgages, corporate and government), since interest rates were so low, and much of the time was lower than inflation. The economic growth in Spain in the last 8-10 years has been fantastic, a lot better than all its European peers. Without credit, the economic growth couldn’t have been so great. Now during the current credit crunch Spain faces a problem, but as the Spanish saying goes “que le quiten lo bailao” (they can’t take away the good times).

So, the fact that Argentina was able to grow at 9% without credit is really good. But let’s remember that the lack of credit for Argentina and in Argentina was not by choice, but due to the 2001-2002 monetary and banking collapse and the subsequent default. So one would have to wonder 2 things:
– how much more could Argentina have grown if it had access to credit in the last 5 years.
– how much of this growth was to “catch up” after the 2001-2002 recession (Argentina had a lot to grow in order to reach its previous economic output levels from the late 90’s), and therefore, how much growth is sustainable on a cash only basis (or without credit) in the near future.

Best regards,


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Elliott on January 12, 2008  · 

Just because consumer credit was abused and used inappropriately does not invalidate the concept of government, corporate and consumer debt. “Subprime” was a euphemism for inappropriate mortgages. In the trade they were called “liar loans” and “no doc” [no document] loans as all that was required was for the prospective debtor to “state” what his income and assets were. There was no verification and the mortgage broker, who would earn a fee, would abet the debtor by indicating what income and assets would be required to qualify for the mortgage. The historic easier credit in the US over the last 100 years led to the amazing high percentage of home ownership in the US with all its associated benefits. Government debt on the local, state and national levels allows for the development of required infrastructure. Our politicians at every level in the US, and I would expect elsewhere, do not have the patience and rectitude to save up funds over years until the funds are sufficient to build the next school or road or any other capital project. Overwhelmingly, when the public funds are available they will be spent [mis-spent?] immediately. In contrast, in Florida the government committed about a billion USD from state and local bonds to attract biotechnology and already Scripps Clinic, Max Planck Institute and other smaller entities have set up operations [several hundred employees and growing] in Palm Beach county that are contributing to the economy by construction, technical, administrative and clerical jobs plus housing, restaurants, etc. Corporations can use appropriate levels of debt to leverage their assets and accelerate their growth similar to the use of equity infusions in startups that couldn’t grow without OPM. In summary, as with anything else, credit can be good or bad depending on how it is used or abused.

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jaime on January 13, 2008  · 

soberbia reflexión. Ardería en deseos de verla en castellano, a ver por dónde te critican…

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Joe H. on January 14, 2008  · 

Suitcase of Cash Tangles U.S. and 2 Latin Nations in Intrigue

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Martin Varsavsky on January 14, 2008  · 


I agree that that is the case as a one time event. But, in the long run, I am not convinced that mortgaging your home, yourself, your city, your state, your country is sustainable.

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Antoin O Lachtnain on January 15, 2008  · 

Well, there is definitely such a thing as over-leveraging, but if you have meaningful projects to invest the money in, then borrowing is a good idea, surely?

The problem isn’t the amount of gearing, the problem is the nature and quality of the projects funded by the borrowing.

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Hernán Nieto on January 20, 2008  · 

Antes que nada aclaro: no soy economista, pero algo de economía he estudiado. Lo que escribió Manuel en sus últimos dos párrafos es en parte una incógnita que no puede develarse y en parte una explicación. Lo veo como un vehículo en punto muerto bajando una pendiente, la misma inercia hará que suba, al principio con mayor velocidad que sobre el final; salvo que en algún momento se ponga en marcha el motor. Con respecto a esto último, tengo mis dudas que hoy en la Argentina esté ocurriendo, entiendo que son factores externos los que ocsionan mayormente el despegue.
En lo relativo al crédito, hoy es de índole interna en su mayoría (a mi entender es muy positivo que asi lo sea, por lo menos de momento) lo cual expone al país a menores riesgos económicos foráneos a pesar que no sea adecuado (cantidad / calidad).
Por último debo mencionar que este país dista mucho de tener una economía equitativa, existen como en todas desequilibrios, pero tal vez por tantas crisis sufridas esto sea más notorio.

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L on January 23, 2008  · 

Debt just increases the price of items: price + interest. Eleminate debt and it’s associated cost of interest, you increase you spending/saving power. Secondly, without debt, you don’t have to worry about forclosures.

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Mark on September 18, 2008  · 

Hi Martin, have you read “El Sindrome Argentino” by Roberto Cachanosky? Its an excelente book, which describes the current argentinian situation, and why the majority in argentina want to be more equal than more free to choose. Finally, his aim is to describe how the argentinan people have loose their historial welfare state.

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