(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)

By Martin Hutchinson

NEW YORK, April 25 (Reuters Breakingviews) – Mexico’s
banking revamp – postponed this week – deserves a shot. The
reforms include a universal credit registry and easier
foreclosure, both big improvements that could boost consumer
borrowing and spending. But they also allow the regulator to
force banks to lend. That’s a flaw that leaves the risk of a
Brazil-style hangover.

The Mexican banking system is underdeveloped compared to its
peers, with only 27 percent of the population having a bank
account, according to the World Bank. Domestic credit to the
private sector totaled only 26 percent of GDP in 2011 compared
with 61 percent in Brazil, 71 percent in Chile and 191 percent
in the United States.

A central credit bureau will help. The high level of
informal employment in Mexico’s economy makes credit assessment
difficult, but a universal registry will, for example, help
banks learn whether a would-be customer has previously defaulted
on other providers’ credit cards – something they can’t at
present find out. The difficulty lenders have foreclosing in
Mexico thanks to a slow and convoluted legal environment also
makes mortgages expensive with an average interest rate of 12.1
percent, according to the central bank, against current annual
inflation of 4.3 percent. Changes to the foreclosure rules
should help bring that cost down.

The bank reform package therefore stands a decent chance of
getting more credit flowing at lower cost and so increasing the
rate of GDP growth. Yet it carries a big risk that doesn’t apply
to Mexico’s useful plans for changes in energy,
telecommunications and education. The bank regulator will be
empowered to force banks to lend and prevent them from trading
securities for their own account if they fail to do so. That’s a
recipe for distorted lending that could help trigger a credit
crunch in the future.

Brazil’s private sector lending increased to more than 60
percent of GDP from less than 30 percent of output in just eight
years. That helped create an economic boom from the extra
consumption. But growth has now stalled, and there are signs of
lingering credit headaches. Mexico needs to open up its banking
market – but avoid too much of a credit carnival.

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CONTEXT NEWS

– The presentation in Mexico of major banking reform
legislation, which had been due on April 23, was delayed because
of a dispute between Mexico’s three political parties relating
to funding of regional elections in the state of Veracruz.

– The legislation would establish a nationwide credit
reporting bureau, including data from government and other
banking sources. It would ease the process for banks to take
possession of assets in case of default, which can take five
years in the case of a home mortgage. The banking regulator
would also get new powers to punish lenders that fail to channel
enough resources into credit, even limiting banks’ securities
trading on their own account.

– The Banco de Mexico’s policy interest rate is currently 4
percent compared to 12-month inflation of 4.3 percent, while
mortgage rates average 12.1 percent and credit card rates 29
percent, according to Banco de Mexico data.

– Reuters:

Mexico political dispute hits banking plan, raises doubt on
reforms [ID:nL2N0DA0WH]

Exclusive: Mexico bank reform would ease legal hurdles to
boost credit [ID:nL2N0D80DM]

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Adios gridlock [ID:nL1E8NQ1XR]

– For previous columns by the author, Reuters customers can
click on [HUTCH/]

(Editing by Richard Beales and Martin Langfield)

((martin.hutchinson@thomsonreuters.com)(Reuters messaging
martin.hutchinson.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS MEXICO/BANKS

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

David Stockman is a polemicist. “The Great Deformation: The Corruption of Capitalism in America”, the new book by the former adviser to President Ronald Reagan and private equity magnate, is a tirade, arguing over more than 700 pages that crony capitalism and central planning have increasingly corrupted U.S. policy since the Franklin Roosevelt administration.

Stockman has a clear intellectual starting point – the Austrian school which holds that loose monetary policy encourages the build-up of “malinvestment”, inevitably followed by the major economic downturn needed to liquidate assets and operations with no long-term economic value. Stockman sees a long history of politically motivated easy money, with the fiscal deficits and inflation that followed President Richard Nixon’s abandonment of the Bretton Woods gold peg as the key misstep.

The book has flaws. Some of the material, for example about financial misbehaviour in recent years, has been presented well elsewhere. And some judgments are doubtful. For example, the denunciation of Reagan’s defense build-up is ill-considered, as it was relatively modest and peaked at a lower proportion of GDP than was managed under President Dwight Eisenhower, whom Stockman praises.

Excessive vitriol, especially against ex-colleagues such as the gentlemanly George Shultz and Caspar Weinberger, weakens the overall case, even if some of the anger appears deserved. Treasury Secretary and former Goldman Sachs Chairman Hank Paulson did, after all, divert as much as $180 billion from taxpayers to the undeserving American International Group. A withering critique of the 2008 TARP process is highly effective.

Like most Austrian economists, Stockman heavily criticizes excessively expansive monetary policies of the U.S. Federal Reserve, from as far back as the central bank’s decision after the one-day October 1987 stock-market crash to provide massive funding to Wall Street. The “Greenspan put” that began that day eventually led to the 2002-7 housing bubble. Here Stockman is very persuasive. His examination of the nefarious policy interaction between the Fed, the Treasury and Wall Street, whereby monetary and fiscal policies have become ever more stimulative, is perhaps the strongest part of the book.

Some Austrians have sympathy for the formulaic monetarism of Milton Friedman, but Stockman makes a good case against Friedman’s preferred policy of steady expansion of money supply at a fixed rate. He thinks it is unworkable, both because of measurement difficulties and because political pressures on the Fed chairman are too great. However, he recognizes that his preferred alternative of a full Gold Standard, preferably the pre-1914 model without Fed meddling, is probably politically unrealistic.

For anyone whose economics are Austrian, and who agrees with Stockman that crony capitalism and corruption have led both fiscal and monetary policies into a cycle of ever-increasing stimulus and ziggurats of debt, “The Great Deformation” is gloomily persuasive – and bodes ill for the future.

The tone of the book supports press reports that Stockman was a terrible colleague. But at least for Austrians, his fanatical devotion to tight money and his refusal to compromise would be ideal characteristics for the next Fed chairman.

Being an island is tough. Cyprus and Jamaica both have a tourism-led economy with GDP around $25 billion on a purchasing power parity basis, and both are in line for about $1 billion in help from the International Monetary Fund. The twin island bailouts show that no euro shackles are needed for low growth and declining productivity to make it hard to keep on moving.

Cyprus’ GDP per capita peaked at some $27,000 at purchasing power parity compared with Jamaica’s $9,000. Their populations are in the opposite proportion – 2.7 million for Jamaica versus 900,000 for Cyprus (excluding the Turkish part of the island). Much of Cyprus’ greater wealth derives from its offshore-heavy and now crumbling banking system, which has deposits roughly five times GDP.

Jamaica’s banking sector might look more like Cyprus if it had shared the tax haven ambitions of its neighbors Bermuda, the Bahamas and the Cayman Islands. Instead Jamaica’s banks were nationalized in the 1970s, privatized in the 1980s and bailed out between 1997 and 1998. They now boast assets of only about $6.7 billion – less than 50 percent of GDP. The island’s principal export is the aluminum ore bauxite, and its once dominant global market share has declined.

Tourism features heavily in both islands’ economies, but Jamaica has the disadvantage of a high crime rate while Cyprus is hampered by high costs, partly the result of being in the euro zone. The net result for GDP has been an average decline of 0.5 percent a year in Jamaica between 2008 and 2012. Cyprus has done a bit better with average annual growth of 0.2 percent, but that’s now set for a reversal.

Cyprus’ help from the IMF is coming as part of a euro zone rescue. In Jamaica, by contrast, the fund is on its own. The latest bailout plan follows a long period of low growth, declining productivity and falling competitiveness. Without a big banking system of its own, Jamaica’s government has racked up foreign debt to the tune of 100 percent of GDP.

Despite the differences, both situations show the challenges faced by small, relatively narrow economies when global conditions go against them. Being islands where the sun is (usually) shining makes them great places to visit – but managing their finances is more of a rat race.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Margaret Thatcher’s government was Schumpeterian: it destroyed as well as created. Her ultra-high interest rates and strong pound devastated industry, then her 1986 reform gutted the City of London. But her reduction in marginal tax rates and defeat of the unions restored Britain’s economic vitality.

Thatcher was not brought up as a Conservative. Her father, a successful mayor of Grantham, was a Liberal supporter of the 1931 National Government. She shared neither the paternalism of the Disraeli nor Lord Liverpool’s belief that Conservative free-market economics must be tempered by respect for organic, long-established existing institutions.

Her 1986 reform of the City was based on a “level playing field” ideology that took no account of Britain’s three centuries of financial history; in the event it undermined the London merchant banks and with them the British comparative advantage in financial services. She had other failures. The 1979-80 Rhodesia/Zimbabwe settlement did not provide adequate protection for Rhodesians’ civil rights. She failed to exercise enough scepticism about the Channel Tunnel’s cost estimates, landing Britain with a narrowly focused Continental connection rather than a broader and more economically generative link that would have been provided by a bridge. Some will think she failed to embrace European integration too; while others will conclude that she did too little to keep Britain away from the clutches of Brussels.

Thatcher was accused of being excessively confrontational. However, her combative approach enabled her to keep her cabinet in line in the difficult early years of 1980-82, when an overvalued exchange rate and high interest rates were destroying much of Britain’s manufacturing capability. Gritty determination also led her to defeat a militarily underpowered opponent in the Falklands conflict, a victory that ensured her own political survival.

She played an important supporting role to U.S. President Ronald Reagan in the bloodless defeat of Soviet Communism and stiffened President George H.W. Bush in the run-up to the first Gulf War. Indeed, her willingness to confront was a key strength. Without it she could not have defeated the over-mighty trades unions – notably the miners – and this was a victory essential for British economic survival. A lesser character would have caved in to her opponents and lost everything, as Edward Heath did in the much less difficult circumstances of 1972.

The UK’s share of world GDP, based on purchasing power parity, declined from 4.3 percent to 4.1 percent between 1979 and 1990. It then dropped to around 3.6 percent in the next two years, largely thanks to the overvaluation of the pound through its link to the deutschemark. But Britain’s enduring economic strength owes much to Margaret Thatcher. She was an inspiration to her successors, and demonstrated that free-market economic policies pave the path towards improving living standards.

Margaret Thatcher’s government was Schumpeterian: it destroyed as well as created. Her ultra-high interest rates and strong pound devastated industry, then her 1986 reform gutted the City of London. But her reduction in marginal tax rates and defeat of the unions restored Britain’s economic vitality.
Thatcher was not brought up as a Conservative. Her father, a successful mayor of Grantham, was a Liberal supporter of the 1931 National Government. She shared neither the paternalism of the Disraeli nor Lord Liverpool’s belief that Conservative free-market economics must be tempered by respect for organic, long-established existing institutions.
Her 1986 reform of the City was based on a “level playing field” ideology that took no account of Britain’s three centuries of financial history; in the event it undermined the London merchant banks and with them the British comparative advantage in financial services. She had other failures. The 1979-80 Rhodesia/Zimbabwe settlement did not provide adequate protection for Rhodesians’ civil rights. She failed to exercise enough scepticism about the Channel Tunnel’s cost estimates, landing Britain with a narrowly focused Continental connection rather than a broader and more economically generative link that would have been provided by a bridge. Some will think she failed to embrace European integration too; while others will conclude that she did too little to keep Britain away from the clutches of Brussels.
Thatcher was accused of being excessively confrontational. However, her combative approach enabled her to keep her cabinet in line in the difficult early years of 1980-82, when an overvalued exchange rate and high interest rates were destroying much of Britain’s manufacturing capability. Gritty determination also led her to defeat a militarily underpowered opponent in the Falklands conflict, a victory that ensured her own political survival.
She played an important supporting role to U.S. President Ronald Reagan in the bloodless defeat of Soviet Communism and stiffened President George H.W. Bush in the run-up to the first Gulf War. Indeed, her willingness to confront was a key strength. Without it she could not have defeated the over-mighty trades unions – notably the miners – and this was a victory essential for British economic survival. A lesser character would have caved in to her opponents and lost everything, as Edward Heath did in the much less difficult circumstances of 1972.
The UK’s share of world GDP, based on purchasing power parity, declined from 4.3 percent to 4.1 percent between 1979 and 1990. It then dropped to around 3.6 percent in the next two years, largely thanks to the overvaluation of the pound through its link to the deutschemark.  But Britain’s enduring economic strength owes much to Margaret Thatcher. She was an inspiration to her successors, and demonstrated that free-market economic policies pave the path towards improving living standards.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A new despair is seeping out of U.S. employment numbers. The economy added just 88,000 new jobs in March, according to data released by the Bureau of Labor Statistics on April 5. And the number of people counted as available to work fell to its lowest level in 34 years.

The labor participation rate now stands at just 63.3 percent. That’s 0.2 percentage point below February’s number and a worrying 2.7 percentage points below the level at the end of 2007 as the boom came to a close. Baby boomers growing old and retiring early is responsible for part of this – even though employment of over-55s has increased steadily through the recession.

But another factor is that almost 9 million American citizens now rely on disability benefits – doubling since the mid-1990s when welfare was last reformed. Having increased by 25 percent in the past five years, it appears to account for a fifth of the fall in participation.

Recent investigations by the Atlantic and NPR have unearthed a variety of reasons. It’s a no-brainer for cash-strapped states, for example: unlike unemployment benefits, disability pay is covered by the federal government. Some states, including Washington, have even hired private firms to help people switch.

It’s a worrying trend. Even those with partial disabilities, such as backache and diabetes, generally never work again. The increase in the unemployable also skews the data. Last month it helped the unemployment rate fall to 7.6 percent. Adjust the participation rate to the level 12 months before, and it jumps to 8.3 percent.

It’s just one month’s data, and it’s not all bad. Revisions to previous months’ figures produced an additional 61,000 jobs and most sectors showed moderate strength – although retail lost 24,000 jobs, possibly a delayed effect of the payroll tax increase.

But the rise in the long-term unemployed adds costs to the economy. And it does not lend itself to being fixed by either monetary or fiscal stimulus. Even if job gains pick up again, it’s a serious hindrance to reaching full employment.

By Martin Hutchinson

NEW YORK, March 27 (Reuters Breakingviews) – The BRICS countries, meeting in Durban this week, are inching towards an alternative to the dollar bloc. Brazil and China said on Tuesday that they will use their own currencies for trade and the five nations are still working on creating a rival to the World Bank. Despite flawed policies, the group is a useful counterweight in the global economy.

Summits involving Brazil, Russia, India and China have been held annually since 2009, with South Africa joining the gathering of leading emerging nations in 2011. Between them, the five countries boast nearly half the world’s population, and their trade in goods and services totaled $6.8 trillion in 2011, 15 percent of the global total according to United Nations figures. That’s enough to give the grouping serious heft, and the summits seek to increase cooperation, hoping to balance Western economic power and the so-called Washington consensus approach to policy.

The Sino-Brazilian deal provides for up to $30 billion of the pair’s $75 billion in bilateral trade to be denominated in their domestic currencies, removing it from the dollar trade zone. Finance officials didn’t get as far as some had hoped on the establishment of a BRICS infrastructure bank, but it remains on the agenda.

The BRICS economies have domestic interest rates considerably higher than the West’s and budget deficits mostly far smaller. They suffer from significant flaws, including oversized state sectors and in some cases massive corruption. But the flaws are different from those of the developed world, and therefore they are unlikely to become critical at the same time.

The big differences between the individual BRICS, their fierce independence and a dose of mutual suspicion are likely to limit integration – issues like how a development bank should be funded are contentious. And structural problems are likely to prevent them reaching their full economic potential. Yet with the European Union, the United States and Japan all growing slowly and pursuing similar monetary and fiscal policies, even a loose alliance with a different approach should be helpfully stabilizing in the event of an economic crisis.

CONTEXT NEWS

- The fifth BRICS economic summit between Brazil, Russia, India, China and South Africa was held in Durban, South Africa on March 26 and 27.

- China and Brazil on March 26 agreed to trade in their own currencies for the equivalent of up to $30 billion of their current $75 billion in annual bilateral trade.

- According to United Nations figures, the BRICS economies accounted for $3.5 trillion of goods and services exports in 2011, 16 percent of a world total of $22.4 trillion. They accounted for $3.3 trillion of goods and services imports, 15 percent of a world total of $21.9 trillion.

- Fifth BRICS summit declaration: link.reuters.com/puz86t

- Reuters:

RELATED COLUMN

- For previous columns by the author, Reuters customers can click on <HUTCH/> (Editing by Richard Beales and Martin Langfield)

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The S&P 500 Index of U.S. stocks is nearing a new record close to eclipse the peak of 1,565.15 set in October 2007. Simple interest-rate based valuations, such as the so-called Fed model, suggest the benchmark could more than double again – but on long-term assumptions, it would then crash-land.

The Fed model equates the earnings yield on stocks with the prevailing 10-year Treasury bond yield. This yardstick proved a reasonable predictor for shares between 1982 and 2007, with stock markets rising as interest rates fell. The relationship has broken down since then.

The model named for the Federal Reserve is flawed, accounting neither for the inflation protection built into stocks nor, on the downside, for the extra risk of stock over U.S. government bonds. Nevertheless, ultra-low interest rates tend to push stock prices higher. Were the S&P 500 to align with the Fed model so the earnings yield equaled today’s 2 percent return on 10-year Treasuries, it would top 4,000. Matching the previous high in 2000 for the index adjusted for the nominal size of the U.S. economy would bring a new peak just shy of 2,500.

Even that would represent a significant bubble. In fact, the current level of the S&P 500 is a stretch. Based on current as-reported earnings and a 1950 to 2012 average price-to-earnings ratio just under 19 times, according to data compiled by economist Robert Shiller, a figure of around 1,600 is on the money. Today’s U.S. corporate earnings, however, are flattered by low interest rates. They totaled 12.5 percent of national income in the most recent government statistics. Since 1950, the average is 9.5 percent. Overlay that adjustment, and the right level for the S&P 500 would be nearer 1,220.

Alternatively, apply the Fed model using a long-term average Treasury yield. Take current S&P 500 earnings and apply a 50-year average yield of 6.6 percent, and the result would put the index at about 1,290. Assume earnings will decline as a proportion of national income, as above, and that drops to about 980. Dividends reveal a similar picture. The average dividend yield on the index between 1950 and 2012 was 3.3 percent. The current yield is 2 percent. Assume a reversion to the long-term mean, and the S&P would drop by nearly 40 percent.

Or look back to February 1995 when then Fed Chairman Alan Greenspan embarked on policies that expanded the money supply much faster than the pace of economic growth. The S&P 500 stood at about 487. Apply the growth in nominal GDP since, and it implies an index level of 1,060. Once interest rates and other factors normalize, the index could slump by a third from current levels – and far more should investors first inflate it further.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Benn Steil calls his study “The Battle of Bretton Woods” but in reality the 1944 conference which created a new financial system after World War Two was more of a massacre of British interests by the U.S. Treasury’s Harry Dexter White.

Steil is a senior fellow at the American think-tank, the Council on Foreign Relations, and a well-known writer on financial topics. He tells the story as personal, political and economic. John Maynard Keynes, the principal British negotiator, was an hereditary member of the Cambridge intellectual elite and the first “celebrity economist”. White, from a poor background, was a protégé of Henry Morgenthau, Treasury secretary since 1934. He was also an active agent for the Soviet Union.

Both men were determined to replace the pre-war financial system. Keynes thought he had something better. White (and Morgenthau, who generally followed his lead) blamed it for much of the poor performance of the world economy and U.S. exporters during the 1930s.

Steil brings out nicely the parallels between White’s wish for a rigid exchange rate system and today’s U.S. policymakers’ wish for a floating rate system; the common desire for a weak dollar to help U.S. exporters led to diametrically opposed policy prescriptions. Then, fixed rates kept the currency of a country with a payments surplus from rising. Now floating rates allow the currency of a deficit country to sink.

Thus when Keynes brought out his scheme for a new world currency “bancor” to be created by what became the International Monetary Fund, White preferred to restrict the new institution to receiving gold as capital and making loans from that capital. Eventually, by sleight of hand during the drafting process, White ensured that the dollar would be given a special position of convertibility into gold and use for settlement of international transactions. White was also highly sensitive to Soviet demands, but since their main monetary objective was to retain a major position for gold (of which they were a large producer) there was little potential conflict in that area.

Politically, White and the Soviets were also aligned; they both favored a system of fixed exchange rates and the dismantling of Britain’s modest Imperial Preference tariffs. But Keynes also favored government control and distrusted free markets, refusing to explore the possibility of a post-war credit to Britain from Wall Street (which would have greatly strengthened his bargaining position). He made little effort to defend UK tariffs or to obtain the post-war sterling devaluation which British exporters such as Morris Motors desperately needed.

In the event, Morgenthau, White and the Soviets achieved almost all their principal objectives at Bretton Woods, and then went off to play golf. Keynes was left to defend to the House of Lords a deal far different from the one he had contemplated, and to return the following year for a pathetic and only partially successful effort to obtain a post-war credit from the U.S. government.

Steil brings out well the difficult interpersonal dynamics between the two prickly personalities, and makes clear his own view that Britain would have done better to send a diplomat to lead its delegation, who would have been more aware of U.S. procedural shenanigans and more skilled in negotiation, perhaps getting the friendly Dean Acheson at the State Department to help neutralize Treasury’s hostile Morgenthau/White tandem. Steil does not offer a name, but the best alternative might have been Oliver Lyttelton, then minister of production, with a 20-year City and industrial career behind him and a genuine commitment to both free markets and the needs of the British and Dominion economies.

The book shows personal sympathy for the combative White and some political and economic sympathy for the common desire to meddle with free markets. Still, Steil is both a fair-minded and engaging writer, and those with different proclivities, even imperialist Brits, can still enjoy his account of one of the defining struggles in a crucial part of the modern world.

Venezuelan President Hugo Chavez’s economic program did everything, except work. The strongman, who died on Tuesday, won elections regularly – most recently in October last year – and his economic policies played well at home. His rule coincided with a giant surge in oil prices, helping avoid bankruptcy for his country. Yet Chavez’s stewardship alienated foreign investors as well as governments, and kept Venezuelans poor.

It’s true that Chavez inherited a dire economic position when he took office in February 1999. Venezuelan living standards had declined by around 16 percent over the previous quarter-century. And oil prices, the main determinant of the nation’s economic fate, bottomed at under $10 per barrel in December 1998, the month he was elected. Because free-market policies, tried intermittently in the previous decade, were perceived to have failed to reverse Venezuela’s decline, many voters supported Chavez’s populist approach.

His first four years were difficult. Oil prices remained low and the state monopoly Petroleos de Venezuela, known as PDVSA, was controlled by his opponents. A 2002 coup attempt came close to success. Chavez took control of PDVSA in early 2003, firing 19,000 employees and replacing management. The enterprise thereafter acted as an arm of his government, contributing $61.4 billion to social funds between 2004 and 2010.

This, together with sharply rising oil prices from 2004, removed most financing and economic policy constraints. Chavez proclaimed an ideology of “Socialism of the 21st Century” in January 2005, which set itself apart from Marxism-Leninism by including more democratic participation and less authoritarian government.

After 2006, Chavez reduced foreign participation in the Venezuelan economy, expropriating overseas holdings with inadequate compensation. He also extended Venezuela’s influence abroad with cheap oil exports and assertive diplomacy, resulting in friendly governments in Bolivia, Ecuador and Nicaragua. A recovery in oil prices, after a dip in 2008 and 2009, enabled Chavez to fund further extensive social programs before the 2012 election.

Yet even with all the benefits of rising oil prices, the average Venezuelan’s standard of living increased by only 9 percent over the first 13 years of Chavez’s tenure. Furthermore, the economy became more dependent on oil, which accounted for 96 percent of exports in 2012 compared with 76 percent in 1999.

Chavez’s aggressive economic populism seemed new, but at heart it was little more than a Bolivarian twist on the 1940s policies of Argentina’s President Juan Peron. Thanks to the world’s continuing thirst for oil Chavez’s irresponsible economic policies may, like Peron’s, retain popular appeal long after his death.

Argentina and Venezuela are both potential candidates for default. Investors may be pricing in the risks in the two countries’ debt. But they seem too sanguine about the danger of 1980s-style contagion elsewhere in the region.

As part of a battle playing out in New York’s courts, Argentina said last week it may stop all debt payments to avoid paying holdout creditors from its last default 11 years ago – even though it is able to pay. Meanwhile under spendthrift President Hugo Chavez, Venezuela’s credit looks shaky. Ecuador, for its part, hasn’t returned to global markets since a default in 2009.

Credit default swap markets show how investors treat Latin American names as a group. Prices for CDS on Colombia, Peru and Brazil, for example, track each other closely, while there’s no strong correlation with other borrowers of similar credit standing like Indonesia and Bulgaria.

All that may be needed is a spark. Latin America’s debt crisis 30 years ago began with Mexico’s admission in August 1982 that the country could not service its debts. This dried up finance for other borrowers, even those such as Venezuela that had only moderate foreign debt in relation to GDP. Every decent-sized country in the region except Colombia defaulted between 1982 and 1984.

Overall, the economies concerned are in better shape today. In the 1980s, the big Latin American defaulters had external debts totaling 40 percent to 70 percent of GDP. Today all the largest names are near or below the bottom of that range, with more of the debt in the private sector. With interest rates at historic lows and credit readily available, they can also borrow freely.

In that context it’s not surprising that Ecuador’s last default and the recent difficulties in Argentina and Venezuela have, generally speaking, had political origins. Financial considerations like the deficits and high interest rates of the 1980s are lesser factors today.

But a surprise populist election victory or, say, a destabilizing slump in key commodity prices could still surprise markets. Add a “risk-off” mood, perhaps stoked by rumbling trouble in Europe, along with the unreliable foreign-debt track record of Argentina and Venezuela, and it’s not hard to imagine another round of regional defaults. The last major episode may predate the Web, but investors could still benefit from Googling it.