Chapter 182 Graduation Ceremony Speech

After a short break, Xu Luo started his own academic exchange plan.

Start with New York University.

In the auditorium, the audience was filled with students and professors from New York University.

Although Xu Luo has been silent academically for a long time, his myth still exists.

"What I want to talk about today is the world economy."

Xu Luo on the stage said into the microphone, "Because I have a premonition that a terrible sovereign debt will occur next. This term refers to the default risk of a country's government failing to fulfill its external debt repayment obligations in a timely manner."
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Everyone in the audience looked surprised. Could it be that what he was saying was that the United States was going to have a sovereign debt?

But I didn’t ask any questions, just waiting for the next step.

Xu Luo continued: "If you are careful, you will definitely find that in 1977, in a speech at Columbia University Business School, Arthur Burns, then Chairman of the Federal Reserve, criticized commercial banks for bearing too high a burden on Third World loans.

Risk."

"In the fall of last year, William Kirby mentioned in an exclusive interview with the New York Times that the Mexican peso would depreciate significantly."

"Therefore, I judge that Latin American countries will fall into a terrible debt crisis this year."

William Kirby is a political risk consultant for a well-known American multinational company. His interview was widely reprinted by major American media.

For a time, capital began to flee Mexico on a large scale. Coupled with the rise in U.S. dollar interest rates, a large amount of capital fled, which indeed led to the depreciation of the peso.

The destructive power of rumors is undoubtedly astonishing. Just like someone is slandering you behind your back and saying you have a bad temper. If you are slandered for no reason and fight back angrily, then you are playing into their trap.

At the beginning of this year, Mexican President José Lopez Portillo delivered a nationally broadcast speech. He told the Mexican public that the current total capital flight from Mexico has reached 76 billion U.S. dollars.

Hidden foreign interests are forcing the peso to depreciate through fearful rumors and capital outflows, shaking Mexico's economic foundations.

At this time, a discerning person can already see that Mexico will probably not be able to pay back the money.

Someone in the audience raised their hands: "I have read this report, but he only said that the Mexican peso might depreciate, and did not mention other countries. Is it a bit alarmist to say that the entire Latin American country will fall into a debt crisis?"

"It's not alarmist." Xu Luo shook his head, "At the end of last year, the Washington Post reported on the debt situation of Latin American countries."

"Take Mexico as an example. Although the Federal Reserve raised interest rates continuously from 1979 to 1981, the scale of capital inflows into Mexico continued to increase.

In 1979, the inflow scale was US$8.45 billion, in 1980 it reached US$11.38 billion, and in 1981 it rose to US$26.6 billion.

However, as the Federal Reserve's monetary policy shifts from easing to tightening, the direction of international capital flows reverses and commodity prices fall, resulting in Latin American countries' balance of payments being unable to make ends meet, debt defaults are inevitable."

He glanced at everyone, "Therefore, I can say that the Fed's tightening monetary policy became the straw that broke the camel's back and was the trigger that triggered the debt crisis."

"And within five months, the Mexican government will announce that "the country is unable to meet its debt repayment obligations on time."

"Since we are talking about the debt crisis, let's talk about how this debt was caused..."

Xu Luo first started with the Federal Reserve's loose monetary policy, then talked about the impact of the two oil crises and Volcker's policies after he came to power.

For those who understand, this kind of thing is not a problem, but for those who don’t understand, it is a detailed lesson.

Many people listened with great interest.

"The tightening of monetary policy in the United States and the strengthening of the U.S. dollar means a decline in commodity prices. The CRB futures price index has dropped from 334.7 in December 1980 to 275.9."

"But this is not the final index. Once the debt breaks out, it will fall to a more terrifying value."

"In addition to external reasons, there are also domestic factors in Latin American countries:

On the one hand, the external debt leverage ratio is too high, and the scale of short-term debt increased rapidly before the crisis;

On the other hand, the failure of the import substitution strategy has led to a certain increase in the export revenue of Latin American countries."

He finally concluded: "Therefore, Latin American countries will fall into a 'lost decade'. As for whether this is the case, we can wait a few more months to see."

It wasn't just him who saw that debt levels in these countries were unsustainable, others had seen it years earlier, but market participants didn't seem to recognize the problem until it had exploded.

Xu Luo's words will not have any impact on the current situation. On the contrary, those financial giants will make these debtor countries fall into even larger debts.

For example, in order to repay debts, Mexico will have to sell off the country's high-quality industries and transfer control of Mexico's oil resources bit by bit to British banks through "debt-for-equity swaps", and then resell them to American oil oligarchs.

If you really can't afford it, the big brothers in the UK and the US will enthusiastically help with debt restructuring.

The so-called debt restructuring is nothing more than extending the debt period and turning the interest owed into the principal of the debt. This is the trick of "compounding profits and compounding profits".

As a result, the debts of these countries exploded, bringing high and stable returns to the financial industries of the United Kingdom and the United States.

He felt that he was still kind and just cut the leeks once and left. These financial giants wanted to break the bones of Latin American countries and suck out the marrow.

Xu Luo bowed to the audience, "I have finished my speech today, thank you all."

The audience roared with applause.

Someone discovered that after being silent for so long, he still looked at the problem as deeply as ever and got to the essence of the problem.

His speech was soon published in the New York University campus magazine.

It sparked discussions among many people and even spread outside.

Xu Luo only had a short exchange at New York University and then left for other universities.

Very busy schedule.

Just like he did in London last year, he visited various universities in the United States this time. His lectures included accounting, statistics, econometrics, international economics, currency and banking, finance, history of economic theory and other fields.

The speech content is published in major newspapers and academic journals in the United States from time to time.

It gives others the impression that this Chinese scholar has made a strong comeback.

At the end of April, Xu Luo returned to MIT.

At this time, the Federal Reserve believed that Mexico did have a real risk of sovereign default, and on April 30, it provided a de facto bridge loan to Mexico, which had borrowed heavily from U.S. banks.

However, these bridging loans are only a drop in the bucket for Mexico at this time.

Xu Luo came to MIT and received a warm welcome.

Principal Paul Gray led people to welcome him.

Any well-known alumni who have gone out here will receive this kind of welcome when they return to school, and it is not specifically for Xu Luo.

Everyone warmly hugged and said hello.

While having dinner together, Xu Luo said that in order to thank MIT for making an exception for him, he wanted to donate US$5 million to MIT.

Personal abilities are important, but you should also keep in mind the help others have given you.

Don’t take other people’s help for granted.

Paul Gray invited him to be the commencement speaker for the class of 1982.

Xu Luo readily agreed.
Chapter completed!