To: Skeeter Bug who wrote (123439 ) 4/10/2001 4:41:43 PM From: Wayners Read Replies (2) | Respond to Well here's some info on Brazil. It turns out that Brazil isn't particularly deep in debt, by the usual measures. The government debt is less than half the annual GDP, no worse than the ratio for the United States and better than that of most European countries. What makes Brazil's deficit so large is not the size of its debt but the very high interest rates it must pay on that debt--interest rates that are high because of a lack of investor confidence. Lack of investor confidence likely comes from previous problems in paying previous debts. People have confidence in the U.S. because we've never defaulted on debt. We have thouhg devalued our currency. We had to devalue our currency during Vietnam in 1971 by 8% because the value of the dollar tied to the value of our Gold reserves got to be too high in relation to our actual gold reserves and people suddenly lost confidence in the dollar. We devalued again in 1973 by 10%. I think most of our problems in the 1970's economically can be traced to the Vietnam war. I think there's two metrics that need to be watched. One is our balance of payments deficit in relation to our foreign currency reserves. Two is the amount of foreign debt, the interest rates for that debt in relation to our GDP. If the dollar were depreciated or devalued, I think the correct term is depreciated since it isn't pegged to anything, we'd see a really big spike in interest rates, an inflationary spike, our exports would increase, our balance of trade deficit would fall, we'd have a recession for sure at first, and it would take a very long time to work interest rates back down. The depreciation of the dollar would help debtors at the expense of foreign lenders and foreign lenders will remember it and demand higher interest rates for a long time afterwards.
