How will international debt affect the U.S. markets?

How to Avoid Another Global Debt Crisis, The New York Times, April 17, 2023

If one country defaults on its loans, it’s a big problem for its citizens. If a dozen countries default, it’s a big problem for the world…

Today’s crisis has several immediate causes: Lenders, again, ignored prudence, so some countries had been borrowing excessively and had unsustainable debt even before Covid struck. The pandemic forced countries to borrow even more to stay afloat as business activity ground to a halt. Then the war in Ukraine drove up the price of food and fuel. Now, rising interest rates have greatly increased the cost of servicing that debt. An estimated 56 countries are in debt distress or at risk of it — more than twice as many as in 2015…

China, which has lent an estimated $900 billion to developing countries over the past 10 years mainly for infrastructure projects under its Belt and Road Initiative, has been reluctant to grant debt relief unless commercial bondholders and multilateral development banks do the same, though it appeared to have backed away from that demand at the meetings last week… [end quote]

The 53 fragile emerging economies

The contours of a debt crisis are starting to become clear

The Economist, Jul 20th 2022

Taken together, then, 53 low- and middle-income countries are already experiencing debt troubles, or are at high risk of doing so. Their economic size is modest—their combined output amounts to 5% of world gdp—but they are home to 1.4bn people, or 18% of the world’s population (see chart 2). And worryingly, there are few options available to ward off crisis…More than a third of the world’s most debt-distressed countries also number among those most indebted to Chinese lenders. …

In the 1980s, emerging-market defaults on loans owed to American banks pushed some financial institutions to the brink of insolvency. Residents of rich economies may take some comfort from the fact that their lenders are less exposed today. …[end quote]

Rising interest rates make paying off debt even more difficult.

This graphic (data from 2015) shows that the U.S. has loaned more money internationally than we have borrowed. But the countries that borrowed money from us are all first world. The U.S. donates, rather than loans, money to recipients of foreign aid.

I doubt that an international debt crisis would have a major direct effect on U.S. stock and bond markets. Billions of people would suffer and some might migrate but the impact on us would be muted.



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@WendyBG There is a chart here that is worth studying. There is a first move to a bottom in the markets that might be 35% in a few cases and the deeper dives a few years later might be 55%.

I am not doing much justice to the description of the chart in this article. Look at the years for the deeper market drops and then look for the preceding drop and its years. My point being the second drop is deeper percentage wise.

1999 -2010

2019 - Present

going by this last one end of this year or early next year another slightly lower low. This is what I subscribe to. On the SPX maybe 3400 where there is support.

The major story might be the Nasdaq. Wild guess with crazy eyes…8500

Big tech is bleeding.



Do organizations such as the IMF forgive loans if the recipient is unable to pay?


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The IMF did approve debt service relief to 25 of the IMF’s member countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT) as part of the Fund’s response to help address the impact of the COVID-19 pandemic.

The IMF, World Bank and other development lenders have been running programs that under certain conditions forgive up to 100 percent of debt in struggling countries.

In general, the IMF and World Bank try to “restructure” debt – that is, extend and pretend that it will eventually be paid back. Countries that default are higher risk so they can only get higher interest loans. The whole point of having an IMF and World Bank is that no sane investor would risk lending to those extremely poor countries that are often riddled with corruption.

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