What Are the Ripple Effects if Argentina Defaults?

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July 30 (Bloomberg) -- Atul Lele, chief investment officer at Deltec International Group, and Bill Janeway, managing director at Warburg Pincus, discuss how a default by Argentina’s government could impact emerging markets and global economies. They speak on “Bloomberg Surveillance.”

Bankruptcy tonight, how do u.s. banks conduct business tomorrow morning?

It's quite a separate issue.

And there's an issue with argentina's default that we need to address.

And that's not on the u.s. bank but investors globally need to realize with some of the risks associated with it.

And particularly at the moment, those assets have gotten quite expensive.

So is this potentially a catalyst that becomes a wake-up call in a larger sense?

Absolutely but there are other catalysts that will coming as well.

We've got the fed meeting today the fed which is reducing liquidity across the world and liquidity growth across the world and we know that the clock is ticking for emerging markets for commodities.

We know that's happening over the next at least 12 months and probably for longer than that.

So that declining global liquidity is is what investors have to wake up to.

I know this is fancy finance.

It's about hedge funds.

Argentina is 2,300 miles long.

It's long, long, long, away from buenos aires, away from the banks.

Does anybody in argentina care about this debate and its potential default?

I think they care about it in that they're already in economic recession.

Economic regulation is very weak in argentina.

Is this going to be a nail in the koch?

No, but it will -- coffin?

No.

but it will -- tom, this is an episode in something that i think we're going to learn to live with.

I agree it to completely.

We've reached the peak of global liberation of finance in 2007. this is another step back towards whether you call it more balanced or more restrength tiff.

You're going to see capital controls.

Is this a reputation of the i.m.f.? i have shifted gears.

They are sympathetic to the notion that national governments have to have some ability to fashion policy without being dictated.

And the professor with a paper two years ago, signaling that radical shift.

It's their bedside reading.

What is what argentina does next?

How will that affect other countries that could be facing similar situation down the road?

It's more of a wake-up call in terms of the argentina specific issue, it's a technical issue where you've got the holdout, etc.

One might look at the proord picture and there are companies that simply haven't taken the liquidity conditions to restructure their economies.

Now, argentina is one of those economies that didn't have all of these liquidities to restructure at the right time.

And when you're trying to introduce fiscal tightening, you don't do it when a time you're experiencing fiscal decline.

And other countries such as turkey are going to face the same situation because they haven't taken advantage of what is a lot of fame.

It almost seems like you've got two very distinct markets on one hand and american markets held in place by the fed.

And if you're not in one of those two areas, are you effectively out of luck?

That's where the crises happen?

Potentially?

Well, those are the two major areas which you're seeing in the global liquidity coming.

It flows into all the other economies.

But the money that's flowing in might not last forever.

The federal reserve is going to reduce the dollar quickly.

Bill janeway, there's always been a rap that argentina plays by a different rulebook.

Coming from world war ii from germany.

In your experience, does argentina play by a different rulebook?

Argentina peaked about 1900. yeah.

They were dominant economy.

The national income has been high.

So you're not going to pin this on the german sport out of world war ii?

They already have moved into a kind of sort of corporatist balanced, which undermine -- economic frothe even before

This text has been automatically generated. It may not be 100% accurate.

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