US, Argentina Sign $20 Billion Swap Line to Boost Milei

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00:00Why is this happening now? And why Argentina? Why does the U.S. want to do this?

00:04Well, so there's I think we can unpack this in three ways. One is why is the U.S. doing this?

00:10The second is what exactly have we got here? And the third would be how might it all end perhaps

00:18in tears? I'll take on the why. And this actually goes back to that story you mentioned that I did

00:24about Scott Besson, the Treasury Secretary for Bloomberg Businessweek in September. I spoke to

00:30the Treasury Secretary back in late July. And at the time, he told me that one of his overarching goals

00:37in office as the Secretary of the Treasury was to, quote unquote, lock in dollar supremacy.

00:43And I asked him, well, how do you do that? And he said, and I didn't appreciate the significance of

00:50it at the time was by facilitating swaps through the Treasury Department, as opposed to the way

00:57that swaps have traditionally been facilitated, which is by the Fed from central bank to central

01:03bank. Now, there is precedent for this. The Treasury Department did that for Mexico back

01:07in the mid 90s during the peso crisis. And it helped. And maybe it'll help Argentina.

01:13But it appears that under the Trump administration, the government's focus is on, again, cuts to the

01:21why. It's not just about locking in dollar supremacy. It's using the dollar as an economic

01:26tool to support countries with which the United States feel it has some kind of ideological

01:32kinship or some kind of trading relationship. It's not like Argentina has been one of America's

01:38major trading partners. It has not. The amount of bilateral trade that goes on between those

01:43two countries is a fraction of what it is with the United States and Mexico or the United States

01:47and Canada or even the United States and Europe. So in that respect, it's unusual. I think if you

01:53think about it, though, in terms of locking in dollar supremacy and using the dollar as an economic

01:58tool and a tool of geo strategy, if you will, it begins to make a little more sense.

02:06You said that there are three different elements that we could we could talk about with this. One

02:11is how another one is how this could end. Let's talk about the what is it that we're actually

02:18talking about? You mentioned that the Treasury Secretary today talked about it as a bridge to

02:24a better economic future and and not a bailout and not a bailout. But the operative word there is

02:30bridge because bridge means something from here to there. In other words, what's the there? This is a

02:35bridge until when? Right. Is it a bridge until after Argentina's midterm elections on the 26th of

02:41this month, Sunday? Is it Trump seemed to suggest as much the other day when he said, well, you know,

02:47if Malay doesn't win, we'll get rid of the swap line. So that's one possibility. Is it a bridge until

02:53Argentina decides to abandon the peso peg, which Sturzenegger, the minister for deregulation and state

03:01trans transformation said was in the cards just last week when I interviewed him here in New York?

03:07Is it a is it a bridge until the 20 billion dollars runs out, which might happen because

03:14Argentina was burning through a billion and a half dollars with a foreign currency reserves a week,

03:19a billion and a half a week before the swap line was put in place? Is it until Argentina's economy

03:25can eventually support an exchange rate at this level? It certainly can't right now.

03:32Or maybe is it a bridge until I don't know, President Trump just loses patience or President

03:37Malay does something to annoy him? It's a lot of any of those. It's a lot of questions. It's a lot of

03:42like possible scenarios. You know, Bloomberg report out yesterday that Jamie Dimon is visiting Argentina

03:46this week, kind of an unprecedented show of support for the government at the mean at the same time

03:52we've had. I think it's The Wall Street Journal reporting that banks are having a hard time kind

03:56of getting around this without some kind of guarantees. Nobody knows. Nobody knows what

04:01Argentina is pledging as collateral. In fact, nobody has seen the agreement to our knowledge.

04:06Right. The banks themselves, which are playing intermediary roles here, don't know what Argentina

04:12has agreed to pledge, you know, so that the United States isn't just on the unlimited losing end of a bad

04:21trade. I mean, that is possible here, right? The big difference between what's going on here and

04:28the comparison that everybody wants to make with the trade that broke the Bank of England, that the

04:33Treasury Secretary was involved in when he worked for George Soros and Stan Druckenmiller back in the

04:38early 1990s. The big difference here is that then the UK had nobody backstopping them. Now Argentina has the

04:45United States backstopping it. But as I say, nobody knows until when. Nobody knows if there are any

04:53mechanisms that have been put in place to make the U.S. taxpayer, if you will, whole, should the

04:59Treasury Department sustain losses on this trade. I've heard that Argentina's uranium reserves may be

05:05involved, that some kind of preferential access to Argentine markets might be involved. Who knows?

05:11It's just it's so it's like it's like a ready aim fire, you know, or a fire, you know, ready aim in

05:19the sense that the swap line was put in place. And then it appears since no document has surfaced yet

05:24that all of the mechanics behind it are being taken care of after the fact. I don't know. But my point is

05:32that if anybody knows he or she has to say, hey, I know. Yeah. The Treasury Secretary, as you mentioned,

05:39described this as a bridge to a better economic future for Argentina, not a bailout. Is the not

05:44a bailout part a fair way to describe it in your view? Is this not a bailout? I think a bailout is

05:48in the eye of the beholder. In some respects, it's unquestionably a gift to President Millay ahead of

05:57these midterm elections. It isn't working for the time being, right? The peso fresh weakened today to a

06:05fresh low and Argentine bonds, which had gained earlier on the formal announcement of this

06:11agreement, have since given up those gains and I think are posting losses. So it would appear to be

06:17a gift in the sense that the peso exchange rate or the peg to the dollar is unsustainable. Millay

06:23doesn't want to allow the peso to float freely. He wants to maintain this peg so that Argentine

06:28inflation is under control, a critical, critical economic consideration going into the midterms.

06:35So even if Argentine, if inflate, like there's no question, if the peso peg were to be abandoned

06:40today, it's not like inflation would, inflation would show up immediately, but it wouldn't show

06:47up in official statistics, excuse me, for some time to come. But Argentines are so conditioned to

06:52this. Right. They know what would happen.

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