As emerging economies come under increasing strain, particularly from tighter credit conditions and risk aversion; namely on currency exchange. High inflation has been an extreme problem for emerging economies. The one country or region that has been followed extensively on morbius glass (in regards to inflation and over valued stocks) has been Argentina and the South American economy.
Argentina already with a track record of defaulting on it’s loans is about to do it again. The Argentine president Cristina Fernandez de Kirchner recently requested that the Argentinian pension funds now come under government control, you don’t need to be an market analyst to know that the proposal is to pay off government debt. This is acknowledged through out the market and now looks certain that Argentina will be the first South American country to go bankrupt.
The current play down on Argentina’s looming default is it will be contained default (in other words the market has factored this in, bonds, stocks etc), we have heard that before haven’t we? Say the credit crisis, the words ‘contained’, ‘de-coupling’ and other phrases that simplified global connected markets and their perilous influence on each other. Synchronised booms are now being followed with a bust. South American economies could go into free fall on the extent of a rapidly slowing Chinese economy. With emerging markets showing weakness, to the point of going bankrupt. This would be a clearer indication that the broader global economy is in a lot of trouble.