Consequences of default: Baker 1, Reinhart 0

During a question and answer series about the Greek crisis on the New York Times economix blog, economic historian Carmen Reinhart warned about the possible consequences of a Greek default by comparing the situation to Argentina's default back in 2001.

Carmen Reinhart:

"Argentina’s economy contracted 20 percent in 2001 after its default, as it was shut out of international markets for a time."

And now, with Otto's permission, I will cue owly.

But why the owl you might ask? Well, it turns out, courtesy of Dean Baker's Beat the Press, that Reinhart's account of Argentina's foreign debt default might've been slightly off...

Dean Baker:

"Actually, Argentina defaulted at the end of 2001. According to the IMF, it's economy then contracted 10.9 percent in 2002. It then turned around and grew at an average rate of almost 9.0 percent in the next five years. No one has such an optimistic set of projections for the Greek economy right now."

Ouch! That's gotta hurt.

For those of you who don't know Carmen "prodigious data sets" Reinhart, she's an economist from the University of Maryland who's recently become quite famous for her work with Kenneth "obtuse math" Rogoff documenting financial crises. These two literally wrote the book on financial and sovereign debt crises--in their 2009 bestseller, This Time is Different: Eight Centuries of Financial Folly, Reinhart and Rogoff put together a data set dissecting crises as old as 800 years ago.

In any case, one of their findings is that throughout history sovereign debt crises usually follow banking crises. And it is no coincidence that Reinhart and Rogoff have been going around warning us that we should all be really, really worried about rising public debts now that the global financial crisis has ended.

Whatever. The point is that I find it surprising and disappointing for such a big name and no doubt an authority on the subject matter to get Argentina's story so wrong; especially since her academic work is usually of such high caliber (Reinhart has also made important contributions to the capital controls literature).

The Count: Goes to Greece

51...

...is the percent of Greeks who, in a recent poll, thought that going to the IMF for help would hurt their country. See, the IMF has done been so fucked up in so many places that the Greeks, as bad as it might be, don't want anything to do with them. The Greeks have already been getting a steady dose of maladjustment in the form of "belt tightening", and they know turning to the IMF means even more. So, as Reuters reports:

The poll by Public Issue for Skai TV showed that 51 percent see the IMF's involvement as harmful while only 27 percent think it would be beneficial.

"As regards other countries which borrowed from the IMF, 52 percent of those asked think they did not benefit, while 28 percent said they did," Skai TV said.

Only 47 percent of those asked said they trusted Prime Minister George Papandreou to handle the economy compared to 55 percent in a similar poll in February.

The poll showed that 87 percent of Greeks were worried about the country's public debt, which based on government projections will hit 120 percent of GDP this year.

A bigger percentage thinks the overborrowed country could go bankrupt compared to February -- 55 compared to 38 percent.

So let me get this right, they think the country is going to go bankrupt, they don't trust the Prime Minister and they are scared about the country's debt….AND THEY STILL DON'T WANT THE IMF! You hear that IMF?!

A breath of fresh air really….but food for thought, if the alternative is the EU, is that any better?