[Chapter 838: The Ill-Fated John Bull]
After the Latin American debt crisis, Central and South America, along with the Caribbean, remained areas of heightened vigilance for banking systems.
They borrowed against national credit, which the banks were happy to provide at low interest rates. In everyone's eyes, national credit was seen as the most reliable.
Unfortunately, the bankers underestimated the limits of politicians, or rather, what the bankers thought was vital, others didn't care about.
There was a belief that the U.S. had issued so many bonds that they had no intention of paying them back. If anyone pressed them to repay debts, they would rather go to war.
First, one needed to understand what national credit actually was. Then, one could examine the currencies they borrowed.
During the Latin American debt crisis, Argentina found itself in deep trouble. They truly could not repay and were unwilling to accept the stringent conditions imposed by the IMF.
Their logic was such: "Our financial problems arose because of John Bull's warmongering. The U.S. and John Bull were in cahoots, and the IMF was controlled by both Europe and the U.S., so they did this on purpose."
If one were to say this was unreasonable, the facts were right in front of them--Argentina was indeed treated differently.
Still, that wasn't a valid excuse for not repaying debts.
Ultimately, they couldn't compete against others. John Bull had already suffered immensely, and they were somehow still gaining experience points from it. Dignity was earned through conflict; what one could not attain in warfare was even less likely to be achieved at the negotiating table.
"Sir, the peso has dropped again, falling more than 15% today. As a result, stock markets across Latin America are plummeting."
"Really? That fast? What's going on? Why is there no resistance?" George Soros looked frustrated; he hadn't intended for a blitz attack, but the pace of the decline was so swift he couldn't even short-sell in time.
To short-sell a currency means one would first borrow pesos from the bank and then sell them on the foreign exchange market. Once the exchange rate reached their expected target, they would then repurchase pesos to repay the loan.
If the exchange rate dropped too quickly, the profit margins would be minimal. If things went awry, there was a possibility they could unilaterally declare a termination of exchange services.
This wasn't a joke; Mexico had done just that during the last Latin American debt crisis. To put it bluntly, their precious dollars could disappear, but the pesos they held could still buy them some tacos.
Soros hesitated to aggressively short the peso largely for this reason. They only had $20 billion in their hands, and if half of that suddenly vanished, replicating the 1986 scenario would be all too easy.
"At this rate, they've lost $5 billion in less than two days. If the IMF doesn't intervene, we could be witnessing a second debt crisis."
"Damn it! What is White Fund doing?"
"Sir, they've narrowed their short-selling strategies and shifted their focus to securities. Also, they seem to be ramping up their shorts against Europe."
"Didn't people stop investing in Latin America after the last debt crisis?"
"Maybe they were wrong; perhaps it's a bet on a global economic recession."
Soros was conflicted, feeling quite perplexed. He simply couldn't understand what the idiots at Harvard Business School were waiting for.
"Come on people, if you don't shell out some dollars to them, how can I safely short this currency? If I get caught halfway through, it'll be utterly embarrassing!"
That damn William White must have been worried about this too; otherwise, how could he only have such a small position?
The old fox was overthinking this. For investments at this level, William White wouldn't care about the process. He just needed to know that, oh, he made $20 million yesterday; seems a bit low. "Keep at it, folks."
If he had to do everything himself, the profits would be minimal. In that case, he might as well just exercise more.
Attention turned to Downing Street, where a group of sharply dressed bigwigs was celebrating their victory.
Argentina's economy, which had just shown some signs of recovery, was once again dealt a severe blow. It seemed they had no energy left to squabble amongst themselves.
For the Malvinas Islands, both sides had essentially drawn blood. Of course, John Bull came out on top to some extent. They had a rather menacing little cousin who, if need be, could humble himself and ask for mercy.
"Gentlemen, we no longer have to worry about the Malvinas; those damned military expenses were suffocating me."
"Long live, God bless John Bull!"
Gordon was incredibly pleased, and his underlings showered him with flattery. It seemed, back then, that the Iron Lady should have opted for a financial assault instead of a full-blown war.
So easy.
If Mr. Nelson knew that his descendants were of this caliber, he surely would not have won the Battle of Trafalgar. Without worthy opponents, they would inevitably decline.
Now, one could say that their present state resembled that of the late queen. As soon as he informed her that the foreigners were having a bad time, she would be thrilled, basking in the glory of thinking it was her brilliance that caused the rift. Little would she know that it was merely thieves squabbling over their loot, and in the end, it was her bill to settle.
Without a doubt, the relief for John Bull was not solely due to Argentina's misfortune. In the last Latin American debt crisis, the U.S. incurred the most losses, followed closely by John Bull. The once invincible HSBC nearly bled out.
Now, it was the others who were in trouble. With a bit of luck, perhaps they could scoop up some bargains. Tsk tsk, that once invincible little cousin of theirs was in for a shameful fall.
They launched free trade zones; so did the others. Looking at the current situation, they were doing quite well while the others had already fallen by the wayside. Of the three countries, why not aim for a pan-American trade zone instead of being restricted to the North American trade zone?
Little did John Bull know that it wasn't for lack of interest; their reputation simply stank too much. A group of nervous little partners surrounded them.
"Hey man, what are you keeping your eye on now? Let's discuss. If it's not too outlandish, you can have it, after all, I can't take you on."
In less than a week, Mexico's facade of prosperity was completely shattered.
The peso depreciated by nearly 45%. What does that mean?
In other words, half of the cash you held evaporated in just a week. As for the stocks and funds, if you were lucky, you might get back 40%.
Wait a minute, if I don't go abroad or buy foreign products, isn't that going to affect me?
How should one put it? If you were in the land of the big bunny (U.S.), it really wouldn't matter. Essentials were constrained in price to a certain extent, so rampant speculation was off the table.
Mexico, however, was a different story. If you didn't want to incur massive losses, you better convert your currency to physical goods fast.
"Damn it, the Harvard folks are still squabbling. It's been a week already! Don't they realize that a severe inflation crisis is underway in Mexico?"
"Paul, Clinton's trying his best. He doesn't want an economic crisis, nor does he want to see inflation. The economy in the U.S. is doing well right now, and he doesn't want any uncertainty."
Even the former big man of the Fed, Alan Greenspan, had to show respect. Paul Volcker, being highly aware of inflation, was very unhappy with the current seemingly never-ending quantitative easing. "You fools actually think all this inflation can be wholesaled away?"
"Alan, this is serious; Christmas is closing in. Even if they reach a resolution, it looks like it'll be too late."
*****
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