{"id":36788,"date":"2018-08-18T12:06:17","date_gmt":"2018-08-18T17:06:17","guid":{"rendered":"http:\/\/olduvai.ca\/?p=36788"},"modified":"2018-08-18T12:06:17","modified_gmt":"2018-08-18T17:06:17","slug":"heres-how-external-dollar-debt-produces-an-emerging-market-crisis","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=36788","title":{"rendered":"Here\u2019s How \u201cExternal Dollar Debt\u201d Produces An \u201cEmerging Market Crisis\u201d"},"content":{"rendered":"
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Here\u2019s How \u201cExternal Dollar Debt\u201d Produces An \u201cEmerging Market Crisis\u201d<\/a><\/h3>\n<\/header>\n
\n

Emerging market currencies are collapsing pretty much everywhere these days. But it\u2019s safe to assume that most people don\u2019t understand exactly what\u2019s causing this outbreak, why it\u2019s happening now, or what \u201cexternal dollar debt\u201d has to do with it. So here\u2019s a quick primer followed by the obligatory apocalyptic prediction:<\/p>\n

Prelude: cheap dollar financing<\/strong>
\nPretend for a second that you\u2019re Brazil. Your economy is in pretty good shape and your currency \u2013 the real \u2013 is getting stronger. Because of this, people are willing to lend you money.<\/p>\n

Your internal interest rates \u2013 that is, what you\u2019d have to pay to borrow real \u2013 are around 6%.<\/p>\n

But when you look overseas you notice that US dollars \u2013 which have been trending down for a while \u2013 can be borrowed for around 2%. So you run some numbers and conclude that if you borrow dollars and assume that the real continues to rise against the dollar, you\u2019ll make out two ways, on the spread between what you pay for those dollars and what you earn by investing them, and when you pay back the loans with depreciated dollars. So you borrow dollars, not just a little but a lot because with a lot you make a fortune.<\/p>\n

So far so good. For a while the dollar keeps falling versus the real and you earn a nice spread. You feel smart, like you\u2019ve figured out international finance and henceforth will will have a seat at the big table.<\/p>\n

\"US<\/a><\/p>\n

The turn<\/strong>
\nBut then the unexpected (for you at least) happens. The dollar stops falling and starts rising.<\/p>\n

\"US<\/a><\/p>\n

And suddenly the spread you\u2019re making on your external dollar debt no longer offsets the cost of paying back those ever-more-expensive dollars.<\/p>\n

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

Here\u2019s How \u201cExternal Dollar Debt\u201d Produces An \u201cEmerging Market Crisis\u201d Emerging market currencies are collapsing pretty much everywhere these days. But it\u2019s safe to assume that most people don\u2019t understand exactly what\u2019s causing this outbreak, why it\u2019s happening now, or what \u201cexternal dollar debt\u201d has to do with it. So here\u2019s a quick primer followed […]<\/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":[195,213,1732,21284,7544,839],"class_list":["post-36788","post","type-post","status-publish","format-standard","hentry","category-economics","tag-debt","tag-dollar-collapse","tag-emerging-markets","tag-external-dollar-debt","tag-john-rubino","tag-us-dollar"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36788","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=36788"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36788\/revisions"}],"predecessor-version":[{"id":36789,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36788\/revisions\/36789"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=36788"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=36788"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=36788"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}