Overnight Howler at the NYT's 'Room For Debate': 'Default Is Impossible'
On Monday, the New York Times assembled a panel of alleged experts in its Room For Debate section. Each weighed in on Monday's ratings agency outlook downgrade by Standard and Poor's in an item entitled "Is Anyone Listening to the S.&P.?" (Don't ask me why "the" is there. It shouldn't be; the item is about the firm Standard and Poor's, not "the" Standard and Poor's stock index.)
One of the contributors was Yves Smith. Ms. Smith "writes the blog Naked Capitalism. She is the head of Aurora Advisors, a management consulting firm, and the author of 'Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.'"
Wait until you read Ms. Smith's reaction to S&P's move after the jump (bold after title is mine):
S.&P. Should Be Embarrassed
The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.
The Standard & Poor's rating firm should be embarrassed. If there is any political judgment at work here, it is S.&P. falling for politically motivated scare mongering. But given its track record with mortgage securities and collateralized debt obligations, why should we be surprised to see a rating agency relying on conventional wisdom rather than analysis?
There you have it. We have nothing to worry about. The United States of American cannot possibly default on its obligations, because Yves Smith says so. Is there something in her use of "sovereign currency issuer" that renders the U.S. immune? I highly doubt it.
It must be my fertile imagination which found the following currency-issuing nations which have defaulted in the past few decades:
- Mexico, 1982 -- "In the wake of Mexico's default, most commercial banks reduced significantly or halted new lending to Latin America."
- "On August 17, 1998, the Russian government devalues the ruble, defaults on domestic debt, and declares a moratorium on payment to foreign creditors."
- "Argentina defaulted on part of its external debt at the beginning of 2002."
Then there are nations which have repudiated their debts. As seen here (go to the second page of the document), "Mexico (1914), Russia (1917), China (1949), Czechoslovakia (1952), and Cuba (1960) repudiated their debts after revolutions or communist takeovers. Some countries, such as Austria (1802, 1868) and Russia (1839), defaulted after losing wars; others, such as Spain (1831) and China (1921), defaulted after enduring major civil wars."
Repudiation, of course, is a form of default. Believe it or not, there are rumblings from certain quarters that we should consider doing the same.
Somebody should be embarrassed, but it's surely not S&P.
Cross-posted at BizzyBlog.com.