The North from the South

This paper analyzes similarities and differences between the Argentine crisis and the current crisis in developed countries, with its epicenter in the United States. Most economists of the North relate the current collapse to that of the 1930s. However, I argue here that the crises undergone by developing countries should be a useful reference when analyzing the global meltdown. This is not an original argument. Both Reinhart and Rogoff have found many common elements in the banking crises of developed and developing countries. They have studied the depth and duration of the crises based on a combined sample of countries and experiences. My purpose is, instead, to establish some analogies and determine their limits, between the 2001-2002 Argentine crisis and the United States crisis. The policy actions being implemented to respond to the global meltdown include both fiscal and monetary measures with an unprecedented scope in the post-war developed world. Among other actions, the interventions encompass low interest rates, expansion of the monetary base in open market operations including the direct purchase of low-quality assets, increasingly wider discount windows (as regards both the quality and quantity of the assets accepted), loans or contingent lines for financial institutions for the purchase of financial institutions, total or partial nationalizations, as well as a highly flexible regulatory framework. In turn, deposit insurances were increased either partially or totally. And, of course, there were also fiscal stimulus programs of different sizes. These public interventions have no relation whatsoever with the typical counter-cyclical policy whose purpose is to lessen the business cycle. Even more, the incubation of a crisis implies an exaggerated expansionary process, which presupposes the absence of a previously appropriate stabilization policy. Therefore, by definition, the post-crisis interventions are also exceptional. In fact, they are exceptional for the North but, except for the difference in the financial sophistication level, these interventions are more frequent in the South and this legitimates the use of an analogy-based reasoning.