start with a country that, for whatever reason, became a favorite of foreign lenders, and experienced a large inflow of foreign capital over a number of years. Crucially, the debt thus incurred is denominated in foreign currency, not domestic (which is why the U.S., also a recipient of large inflows in the past, isn’t similarly vulnerable — we borrow in dollars).
.. Whatever the shock, the crucial thing is that foreign debt has made your economy vulnerable to a death spiral. Loss of confidence causes your currency to drop; this makes it harder to repay debts in foreign currency; this hurts the real economy and further reduces confidence, leading to a further decline in your currency; and so on.
.. Indonesia came into the ’90s financial crisis with foreign debt less than 60 percent of GDP, roughly comparable to Turkey early this year. By 1998 a plunging rupiah had sent that debt to almost 170 percent of GDP.
.. How does such a crisis end? If there is no effective policy response, what happens is that the currency drops and debt measured in domestic currency balloons until everyone who can go bankrupt, does. At that point the weak currency fuels an export boom, and the economy starts a recovery built around huge trade surpluses.
.. stop the explosion of the debt ratio with some combination of temporary capital controls, to place a curfew on panicked capital flight, and possibly the repudiation of some foreign-currency debt.
.. get things in place for a fiscally sustainable regime once the crisis is over.
.. Malaysia did this in 1998; South Korea, with U.S. aid, effectively did something like it at the same time, by pressuring banks into maintaining their short-term credit lines. A decade later, Iceland did very well with a combination of capital controls and debt repudiation (strictly speaking, refusing to take public responsibility for the debts run up by private bankers).
.. Argentina also did quite well with heterodox policies in 2002 and for a few years after, effectively repudiating 2/3 of its debt.
- .. You need a government that is both
- flexible and
- responsible, not to mention
- technically competent enough to implement special measures and
- honest enough to carry out that implementation without massive corruption.
The emails to Gale were among a wave of fundraising pleas inexplicably sent by the Trump campaign in recent days to lawmakers in the United Kingdom, Iceland, Australia and elsewhere. The solicitations prompted watchdog groups in Washington to file two separate complaints Wednesday with the Federal Election Commission alleging that the Trump campaign was violating federal law by soliciting funds from foreign nationals.
.. His campaign said it raised $2 million in less than 12 hours after blasting out its first email.
.. Gale, a Conservative who has served in the House of Commons for more than three decades, said the hostile tone of the Trump emails he received was off-putting.
.. “I don’t know if someone at Team Trump was stupid enough to think that all Conservative Party MPs would consider themselves Republicans,” Gale said. “But I asked around, and it seems that most others did get these emails, too.”
.. In Iceland, Katrin Jakobsdottir, the chairwoman of the Left-Green Movement, a democratic socialist party that focuses on feminist and environmental issues, said she unexpectedly received a Trump campaign email and has “no idea” how she got on his list.
.. Renting email lists from former candidates is common practice in politics, and there is evidence suggesting Trump is doing that now. A Trump fundraising email sent out Wednesday afternoon came from “firstname.lastname@example.org.”
.. “First of all, I don’t even know why I need so much money,” he said. “You know, I go around, I make speeches. I talk to reporters. I don’t even need commercials, if you want to know the truth. Why do I need these commercials?”
After Iceland’s three largest banks fell in the space of three days, the currency collapsed, the stock market fell 95 percent and nearly every business on the island was bankrupt.
Short-term suffering followed, but today, Iceland is buzzing: Unemployment is 4 percent, the International Monetary Fund is predicting 4.1 percent G.D.P. growth for 2015, and tourism is booming.
.. As real wages fell 11 percent from 2007 to 2010, the government did not take a hacksaw to social services, but instead raised taxes and also offered debt relief to the country’s mortgage holders.
And Iceland did what no other developed country has seemed particularly eager to do: It jailed a bunch of bankers.