Argentina 2001: A Study of Economic Collapse

24 Jul 2012

What Argentina went through a decade ago is eerily similar to what is taking place in the U.S. today.

What A Real Financial/Currency Crisis Looks Like: Argentina 2001/2002, A Case Study

The stages leading up to the collapse can be summarized as follows:

1. Government debt grew rapidly during good times with the debt financed at low interest rates.

2. During an economic downturn, debt growth accelerated until international lenders began to question the government’s ability to repay the debt. Interest rates began to climb.

3. Interest rates accelerated to unsustainable levels as international lenders first demanded higher interest rates to accommodate higher and higher perceived risk.

4. Lenders panicked triggering a collapse of the currency, the banks and the economy.