>>Brad, please let me know what you think about the US default in the 19th
>>C. as a model.
>>--
>>Michael Perelman
>We tried that in the 1980s with Latin America. It didn't work so
>well. Economic development essentially froze for five years as
>everyone waited to see what the resolution would be.
>Much better to clean up government and private enterprise balance
>sheets quickly...
>Brad DeLong
I disagree that the 1980s were comparable with the US default (Latin American states also defaulted in the 19th century, with much less effect on development). There is all the difference in the world between a default on bank debt, with a creditor's cartel formed to make the borrowers take the pain, and a default on bond debt with no IMF to maintain the cartel. In the second case, private creditors bear a lot of the burden that is otherwise borne by depositors (cf the First Barings Crisis). Even in the era of gunboat diplomacy, the Palmerston Doctrine (that investors who had bought overseas bonds instead of Gilts should not expect the British Government to guarantee their high returns) meant that in the event of default, bondholders were, in the chraming phrase I learend last week, shit out of luck. The 1980s crisis was made very much worse by the IMF and WB's insistence on full payment for themselves, and their support of excessively protracted default processes for private creditors.
One of the bond issues which the Council of the Corporation of Foreign Bondholders never got paid on was a series of bonds raised by the State of Mississipi, which they were still hoping for payment on when they dissolved. This was *after* they'd got token payment on the Czar's bonds!
dd
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