On Sunday, July 20 at 3 pm Eastern Time, Dr. Gregory Makoff will spend time with us for a Casual Conversation. Dr. Makoff is a senior fellow at the Centre for International Governance Innovation and Senior Fellow (until July1) at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School.
Dr. Makoff authored Default: The Landmark Court Battle over Argentina’s $100 Billion Debt Restructuring (Georgetown University Press 2024). In a review in Literary Review (UK), Sebastian Edwards wrote:
In his magnificent new book, “Default,” Gregory Makoff tells the story of one of the most fascinating (and surreal, I would say) episodes in Argentina’s history. It is the story of the fifteen-year litigation between the Argentine government and a group of bond holders that followed the collapse of the government’s convertibility plan in 2001.
I agree with the reviewer but why should you care about a court battle, however titanic, that put an Argentina default on its bonds in a federal court in lower Manhattan?
For a number of reasons. Let’s start with a recent graphic that put the new reformer president of Argentina, Javier Milei, on one side with an up arrow next to him and Donald Trump on the other side with a down arrow next to him. Perhaps this can help explain the graphic, from Marcos Falcone at the Foundation for Economic Education:
Before Trump and Milei were elected, both the US and Argentina were running extensive deficits, and both leaders vowed to address the problem. On the one hand, Milei made good on his promise in just one month and balanced Argentina’s budget for the first time in over a decade. Now, 18 months into his presidency, the Argentinian government is spending less than it takes from taxpayers.
By contrast, the US is not only still facing a fiscal crisis, but Trump’s administration refuses to cut spending. While Trump promised to balance the budget, the President’s “Big, Beautiful Bill” is estimated to cut twice as much revenue as it will cut spending, thus adding $2.4 trillion to America’s staggering $36.2 trillion debt. Resistance to this bill from the Republicans seems so far futile.
Could the U.S. default on its debt? Some believe that when Richard Nixon suspended the convertibility of the dollar into gold, he put the U.S. in default. Even without a new default, the sky-high deficits that the U.S. is running and will likely continue to run have consequences for all of us. As the WSJ put it:
Treasury yields are heavily influenced by the economic outlook and investors’ expectations for short-term rates set by the Federal Reserve. A reason why prices have fallen—and yields have climbed—since last summer is that the unemployment rate has stabilized and investors are now anticipating fewer interest-rate cuts from the Fed.
Investors are also concerned that the sheer volume of coming Treasury issuance could outstrip demand and push yields higher, regardless of what the economy is doing.
Investors are accustomed to surging deficits during wars and recessions. Right now the government is borrowing as if it were in a crisis—even though it isn’t. That points to a structural fiscal imbalance that could require the government to keep issuing larger and larger amounts of notes and bonds.
At a hearing before the United States Court of Appeals on rulings by the federal trial court, Judge Pooler asked: “Why would anyone who can read ever lend money to Argentina?” Argentina has repeatedly defaulted, even after the default that became the subject of Dr. Makoff’s book, and even as “most of its peers, including Brazil and Mexico, have not defaulted since they reformed their economies and finances . . ..” What will Dr. Makoff have to say about a U.S. default if one happens.
Which brings us back to this book and what it offers us. First, it deals with the incredibly complex problem of what to do when a sovereign defaults on its debt. Remember that sovereigns are not subject to U.S. bankruptcy law. Second, it focuses intensely on the determined efforts of a smart investor to place enormous pressure on the defaulting sovereign to pay more on the par value plus interest of its obligations. And this investor was determined! Against that are the political machinations and electoral strategies in the country on the other side of the legal battles. Argentina’s Peronist history is one of unbridled populism, and populism is certainly part of Trump’s approach to assembling a goiverni9ng coalition. Finally, this book shines a light on the very human nature of those who sit on the courts of this country, including especially the federal judge who was at the center of the very long battle over Argentina’s debt default, Thomas P. Griesa. And it just so happens that I clerked (during his first year on the Bench) for Judge Griesa, whose concern for the efficient and prompt resolution of cases on his calendar was legendary, as was his temper. Both figure prominently in the book.
Economics, international relations, dramatic court proceedings, a nation on the brink, a demagogic Argentine leader (or two): This subject has everything you could ask for. And more!
Will someone someday say, as the federal appellate judge said of Argentina: “Why would anyone lend money to the United States?”
Let me know by close of business Friday, July 18 should you wish to attend: arthur.fergenson@ansalaw.com .
Arthur Fergenson