Emerging market economies are borrowed trillions of dollars and a high percentage of that loans is in U.S dollar. This means that American and European financial companies are holding a huge bad debt and the damage will mind-blowing when the next financial collapse will arrive.
The global economy is in the greatest debt bubble in human history since the last economic collapse. The emerging market debt bubble is now three times larger than it was in 2007, and it is seven times larger than it was in 2002. Now the next economic meltdown is on the horizon and no one have any idea how to solve this problem. The economic meltdown will start with the weaker countries and then it will spread to the whole global financial system.
Bank of America short while ago calculated that since the collapse of Lehman, government debt has intensified by $30Trillion dollar , corporates debt by $25 Trillion dollar , household by $9 Trillion dollar , and financial debt by $2 Trillion dollar. And with central banks awaited to support government debt, Bank of America warns that the biggest recession risk is disorderly rise in credit spreads and corporate deleveraging. From its side the IMF is warning that the world debt rises to 226% of GDP. Low rates fuel the risks. Expansive monetary policies have saved growth but push investors towards riskier and less liquid assets. Debt growth continues inexorably, especially in emerging countries.
There is the category most vulnerable today: that of emerging countries and their companies. Many countries are hyper-indebted in foreign currency both at state and corporate level: Turkey, Hungary, Argentina, Poland and Chile have more than 50% of the total debt (public and private) in foreign currency according to IIF. About 2,700 billion of emerging country debt will expire by the end of 2019, of which about a third are denominated in dollars. For Argentina, Colombia, Egypt and Nigeria about 75% of the debt maturing in the next year and a half is in dollars. This puts an additional risk on refinancing these debts. All that remains is to hope that the knots of a decade of easy money will not come to a head ...
This is also partly the effect of the era of ultra-low and negative rates and hyper-accommodative monetary policies, which on the one hand have helped to contain the impact of the global slowdown and the war of duties: without these policies, the Fund supports World growth, revised down to 3% for 2019, would be 0.5% lower (end economic collapse could hit some emerging countries). On the other hand, the same policies have fueled the debt race, pushing investors "to take higher risks" and creating vulnerabilities in the financial system, which can become a threat of economic collapse, warns the Global Financial Stability Report.
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