Wednesday, March 27, 2013
The Europe Trap (part II)
Hong Kong, like France, Germany and Britain, has an economy that is fully integrated into the world economy. They have a comprehensive social net to protect their citizens from financial discomfort, but they do not have reckless, foolish entitlement programs that burden the government. Argentina, while it has some international exposure, is a much more self-contained economy. They have an extremely high burden of entitlement programs. A person working for the government 1 day has earned a pension for life. Retirement age is very young.
When Argentina dropped its peg to the US dollar many Argentineans lost as much as 75% of their wealth overnight. Going forward they could take care of their internal obligations with devalued local currency. If Argentineans bought goods produced in Argentina they had inflation, but not as bad as that on imported objects.
The same thing would happen in the peripheral European countries. The real pain will come in decoupling from the Euro. Internal debt can be paid with depreciated local currency. Past international obligations are due in Euros. Many banks now offer accounts denominated in foreign currencies. These are backed by reserves in those currencies and can buffer the effects of inflation for local people.
David Segrest is an International REALTOR in Charlotte, NC. His email is david@segrestrealty.com , His webpage is http://davidsegrest.com , and his international real estate blog is http://dointernationalrealestate.blogspot.com/
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