US District Judge Thomas Griesa is in a tough position.  The federal judge rejected Argentina’s latest bid for a stay of his ruling and ordered Argentina to work out an agreement with hedge-fund holdouts as a July 30 default date looms.

Judge Griesa Argentina

Argentina default will hurt real people: Judge Griesa

If a compromise can’t be found “there will be a default on July 30, and that is about the worst thing that I, sitting here, can envisage,” Griesa said. “I don’t want that to happen. Real people will be hurt by that. Real hurt. Not ‘vultures,’ but real people.”

The “real people” to which Griesa refers could be large financial institutions that have written SWAPs insurance on Argentina’s debt. If Argentina fails to come to an agreement, these institutions, who have underwritten over $700 trillion in such insurance worldwide, will be faced with a rare payout.  And this speaks to a much larger issue.

Argentina’s default first shot in global war of economic dominance

If Argentina defaults, it could be the first shot fired in a global war of economic dominance. Argentina is cozying up to China and other nations interested in dethroning the US and as the dominate world economic super power.  As we have reported in ValueWalk time and time again, the likelihood is that Argentina will default unless it receives a settlement offer from the hedge fund holdouts that meets its needs. Speculation is they will not bend much off their position.

If Argentina defaults, it could be a shot heard round the world that a new economic power is offering an alternative to the US financial system, which had threatened Argentina from being “frozen out” of the world financial community.  For the US economic system, and residents of the western world, this would be a negative development.

As we have reported, there are a number of countries that could default on debt lining up.  If they find comfort in Argentina’s thumbing of its nose at the western economic system it could lead to a domino effect. Those big bank SWAPs derivatives that are effectively backed by a US government risk guarantee – and which Congress built in priority treatment over the deposits of bank customers – could trigger a nasty event derivatives industry insiders have been privately concerned about to a significant degree.

This could explain Griesa’s urgency, as he recognizes that he could be presiding over an unwelcome historic benchmark. In court, Griesa ordered both sides to meet “promptly and continuously” with the mediator he appointed earlier this month. Argentina has met only twice since Griesa named Daniel Pollack to mediate the matter, FinAlternatives is reporting.

“There is not a lot of time,” Griesa pointed out.