{"id":36010,"date":"2018-07-17T08:45:46","date_gmt":"2018-07-17T13:45:46","guid":{"rendered":"http:\/\/olduvai.ca\/?p=36010"},"modified":"2018-07-17T08:46:28","modified_gmt":"2018-07-17T13:46:28","slug":"five-pillars-of-debt-default","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=36010","title":{"rendered":"Five Pillars of Debt\u00a0Default"},"content":{"rendered":"<header class=\"entry-header\">\n<h3 class=\"entry-title\"><a href=\"https:\/\/tomluongo.me\/2018\/07\/16\/five-pillars-of-debt-default\/\">Five Pillars of Debt\u00a0Default<\/a><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p>Regular readers of <strong>Gold Goats \u2018n Guns <\/strong>know that I\u2019ve been handicapping a major sovereign debt default to begin here in 2018 or early 2019.\u00a0 But, what do I mean by that?<\/p>\n<p>How does a sovereign debt default come about?\u00a0 And who will default?<\/p>\n<p>There are a staggering number of factors that feed into this thesis but, for me, to keep it simple it comes down to <strong><em>five important trends coming to a head at the same time.<\/em><\/strong><\/p>\n<p>I call them the <strong>Five Pillars.<\/strong><\/p>\n<p><strong>#1 Massive Foreign Corporate Debt<\/strong><\/p>\n<p>After ten years of \u2018experimental monetary policy\u2019 which drove borrowing costs in U.S dollars down to record lows, foreign companies still reeling from the after-effects of the 2008 financial crisis borrowed <em>trillions of dollars <\/em>to fund the global expansion of the past few years.<\/p>\n<p>That debt pays investors in US dollars.<\/p>\n<p>But, foreign companies tend to book revenue in their local currency.<\/p>\n<p>A falling local currency makes dollar-denominated debt more expensive to pay off.<\/p>\n<p>This leads to the next <strong><em>Pillar\u2026<\/em><\/strong><\/p>\n<p><strong>#2 Quantitative Tightening.<\/strong><\/p>\n<p>QT is simply the opposite of QE, Quantitative Easing.\u00a0 QE expanded the stock of dollars.\u00a0 QT is contracting it.\u00a0 This is what is fueling a rising U.S. dollar.\u00a0 This, in turn, is making it harder for foreign companies to keep up with their bond payments.<\/p>\n<p>They are forced to sell, aggressively, their local currency and buy dollars in the open market.<\/p>\n<p>This is why the Turkish Lira is in serious trouble, for example.<\/p>\n<p>That puts pressure on the country\u2019s sovereign bond market. Since a falling currency lowers the real rate of return on the bond.<\/p>\n<p>Falling currency, falling bonds, Turkey will put on capital controls next.<\/p>\n<p>This feeds into the next <strong><em>Pillar\u2026<\/em><\/strong><\/p>\n<p><strong>#3 Political Unrest in Europe and Emerging Markets<\/strong><\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Five Pillars of Debt\u00a0Default Regular readers of Gold Goats \u2018n Guns know that I\u2019ve been handicapping a major sovereign debt default to begin here in 2018 or early 2019.\u00a0 But, what do I mean by that? How does a sovereign debt default come about?\u00a0 And who will default? There are a staggering number of factors [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[8898,195,6847,200,20914,662,8625,741,16963],"class_list":["post-36010","post","type-post","status-publish","format-standard","hentry","category-economics","tag-corporate-debt","tag-debt","tag-debt-default","tag-default","tag-gold-goats-n-guns","tag-quantitative-easing","tag-quantitative-tightening","tag-sovereign-debt","tag-tom-luongo"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36010","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=36010"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36010\/revisions"}],"predecessor-version":[{"id":36011,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36010\/revisions\/36011"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=36010"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=36010"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=36010"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}