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The Daily Kos last week posted this graph showing just how unusually bad the U.S. stock market decline has been so far this year. The blocks are average returns for the year in question. On the right, the golden years. On the left, well, that’s when things weren’t so good. As you see in the graph, this year is looking awful, really awful. The S&P Market Index hasn’t done this poorly since 1931. As the Kos noted:
“On the chart you can see that the decline that began in 1929 didn’t really reach its nadir until 1931, following which there were wild swings bringing a record positive move in 1933 and a second crash in 1937.”
Argentina’s Merval Index, which is dinky and almost irrelevant by comparison, is down 53.3% so far this year. Much of that is attributable to the global financial meltdown that originated in the U.S. But Argentina’s woes are also partly homegrown. The Merval declined 31% in the roughly one-week period in which investors learned – or heard rumors – about Argentina’s plans to nationalize its 14-year-old private pension fund system.
Meanwhile, two domestic events (the March-July farmers strike and the pension fund takeover) sparked a run on bank deposits that forced banks to raise interest rates to 18% in the fist case and 26% in the latter just to keep money in the banks. As a result, rates on loans (even to the country’s most credit-worthy companies) rose to almost 40%. This exacerbated the fallout from the global credit crisis and further weakened Argentina’s ability to deal with it. Things have since gotten a bit better for banks: interest rates are down and deposits seem to have stabilized. But all of this makes it clear that instead of boosting its immunity to external shocks, Argentina basically did the opposite, exposing itself to them at the worst-possible time.