Washington Post on A16

[Brad De Long]

>  >>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.

Ken Rogoff and Jeremy Bulow claim that the real difference was not 
the IMF and the WB, but instead the waivers of sovereign immunity in 
post-WWII debt contracts.

But by now I'm out of my depth...

Brad DeLong