{"id":36774,"date":"2018-08-18T07:38:54","date_gmt":"2018-08-18T12:38:54","guid":{"rendered":"http:\/\/olduvai.ca\/?p=36774"},"modified":"2018-08-18T07:38:54","modified_gmt":"2018-08-18T12:38:54","slug":"you-should-fear-the-emerging-market-debt-bubble","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=36774","title":{"rendered":"You Should Fear the Emerging Market Debt Bubble"},"content":{"rendered":"
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You Should Fear the Emerging Market Debt Bubble<\/span><\/a><\/h3>\n<\/div>\n
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Global debt has ballooned since the financial crisis as central banks have distorted markets and fueled debt bubbles in particular.<\/p>\n

A lot of the increase in global debt has come from emerging market (EM) economies, especially China. In fact, a record amount of EM debt has accumulated during the past decade, mostly in dollars. A large portion of that debt is therefore denominated in U.S. dollars.<\/p>\n

That\u2019s why I\u2019ve long argued that the first shoe to drop in the next crisis would likely be EM debt.<\/p>\n

Borrowing is not a problem when dollars are cheap. Low interest rates mean the cost of servicing that debt is low.<\/p>\n

The problem starts when the Fed raises rates or the dollar strengthens, even temporarily. The more the dollar rises, the more EM currencies and related markets fall. Dollar-denominated debt then becomes too expensive to repay or service as the dollar rises relative to EM currencies. Before long default becomes the only viable option.<\/p>\n

This situation becomes more dangerous than even asset bubbles because debt is required to be repaid on a set schedule. If a country misses a debt payment, it could set off a chain reaction of defaults.<\/p>\n

That\u2019s why an EM crisis could quickly become a global crisis. In today\u2019s world of financial globalization, any remote crisis can become an international problem in seconds. That\u2019s the reality of today\u2019s markets. Obviously, it could also have major ramifications for your own finances and investments.<\/p>\n

How did we get here?<\/p>\n

Because of the Fed\u2019s rate hike cycle and quantitative tightening (QT) stance, the dollar has become much stronger. The dollar has risen 6.8% since late January alone. And that\u2019s put emerging markets under considerable pressure.<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

You Should Fear the Emerging Market Debt Bubble Global debt has ballooned since the financial crisis as central banks have distorted markets and fueled debt bubbles in particular. A lot of the increase in global debt has come from emerging market (EM) economies, especially China. In fact, a record amount of EM debt has accumulated […]<\/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":[11023,195,8444,1732,312,431,575,818,839],"class_list":["post-36774","post","type-post","status-publish","format-standard","hentry","category-economics","tag-daily-reckoning","tag-debt","tag-debt-bubble","tag-emerging-markets","tag-financial-crisis","tag-interest-rates","tag-nomi-prins","tag-turkey","tag-us-dollar"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36774","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=36774"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36774\/revisions"}],"predecessor-version":[{"id":36775,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36774\/revisions\/36775"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=36774"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=36774"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=36774"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}