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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 368.80+0.2%4:00 PM EST
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To: elmatador who wrote (14303)2/11/2007 2:56:12 AM
From: Elroy Jetson  Read Replies (7) of 217518
 
Foreign borrowing is primarily done by the government only in the poorest nations where commercial borrowers are not credit worthy.

In nations like Brazil, and wealthier nations like the US, the large majority of the foreign borrowing is done by businesses. This pushes up the value of the borrower's currency, as is occurring in Brazil.

In turn, confidence will be lost due to these or other problems: (1) the higher currency reduces exports and increases imports; (2) over-borrowing leads to an inability to pay the debt by many borrowers, during a recession or other problem period, causing lenders to make loan renewals in that nation more expensive.

At this point the value of the borrower's currency will quickly decline. In turn, if the currency declines by 20%, all of the borrowers now owe 25% more to pay back the foreign currency loans. This means they have to cut back, lay-off employees, and the borrower's economy goes into a deep recession.

Perhaps, as in the past, a "solution" with temporary loans from the IMF will be given, combined with hardship measures for Brazil's population to make sure the loans are repaid. At this point Brazil and its citizens becomes the foreign lender's monkey.
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