Several Central American nations still owed to various countries in Europe. “Taft used the threat of American economic clout to coerce countries into agreements to benefit the United States… In his 1912 State of the Union Address, Taft explained that his foreign policy was to “substitute dollars for bullets”.
In fact, President William Taft’s foreign policy of ‘Dollar Diplomacy’ explicitly referenced the interchangeability of traditional weapons and debt. Throughout history, states and sovereign entities have utilized debt as a mechanism for control and influence, wielding the financial instrument like another weapon in their arsenal. There are many ways in which politics pervades the world of debt: It’s the most political thing in the world.” It’s the most personal thing in the world.”Īfter this week, you could convincingly argue: Michael Scott, Scranton, PA paper supply magnate, once stated:
However, after a week dominated by one major story (the debt ceiling & potential default), it felt like not providing historical context would be a disservice to Investor Amnesia readers.
#Sovereign debt defaults series
The bad news is that despite the fact that the country has to pay less than $2 billion on its external debt until the end of the year, default is still“highly likely” unless the country finds a legal way to make these payments.Yes, yes, I know… I am breaking my promise from last weekend that the Panic Series would resume today. The minimum threshold for such an event would be at least $75 million. The good news is that the non-payment of $1.9 million is not enough to cause a cross-default on other instruments. A Credit Derivatives Determinations Committee (CDDC) overseeing Europe, whose members are banks and asset managers, voted“yes” to a question on whether a“failure to pay credit event” had occurred with respect to Russia. Does this mean that a default is imminent?Ĭonsidering the fact that Russia has already missed a US$1.9 million payment in accrued interest on a dollar bond, the probability is very high. Nor does the fact that the US Treasury blocked US correspondent banks from managing dollar payments from Russia add to the optimism of the situation. In the second case, after the US barred Russia from using frozen central bank reserves held in US banks, it has become much more difficult to pay bondholders. In the meantime, the cost of ensuring exposure to Turkey's sovereign debt continues to grow while Turkey's dollar-denominated bond prices fall. The country's regulator has almost no resources left to stabilize the national currency because of the depletion of reserves. In the first case, the dollar-lira exchange rate recently surpassed 17. Two countries inching toward a debt default are Turkey and Russia.
Despite the fact that it would not constitute a systemic global debt crisis, it would still be significant – the largest spate of debt crises in developing economies in a generation. According to the World Bank, over the next 12 months, as many as a dozen developing economies could prove unable to pay back their debt. situation in emerging markets is no better. At the current interest rate, without the European Central Bank (ECB) printing press, it will be impossible to service this debt for a long time. Considering the level of indebtedness of Greece, Italy and some other southern European countries, there is a high risk that the European debt crisis will be repeated once again. Geopolitical instability, sanctions, supply-chain bottlenecks, inflation, and quantitative tapering, together with a restrictive monetary policy, are creating a perfect storm that could trigger corporate bankruptcies and sovereign defaults.Īn increase in Eurozone government bond yields reflects investors' fears about the future of the bloc's economy.
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