Wednesday, February 18, 2009

Defaults By Developing Countries Could Be Next Economic Timebomb

Just in case we needed one more thing to worry about, economic struggles in developing countries could cause them to default on their loans. This would have an effect on most developed countries, including the US. According to research compiled by Kathy Lien, though, the most vulnerable countries look to be in Western Europe. These countries lent a ton of money to developing countries, especially in Eastern Europe where unfortunately they are experience some very serious economic problems. Kathy Lien exposes more about this in her blog post below:

A time bomb is waiting to explode in the Eurozone with Western European banks at risk of defaults on Eastern European loans. This leads me to wonder how much the US and the UK are exposed to developing countries. So I compiled the following charts from the latest Bank of International Settlements data (as of September 2008).

Euro area loans to developing nations are heavily skewed towards Eastern Europe while UK lends predominately to Asia, Africa and the Middle East. The US on the other hand lends primarily to Asia and Latin America.

Default risk in Asian nations are lower than Eastern European nations, which makes the UK and US less vulnerable if a time bomb explodes in Eastern Europe.

Meanwhile USD/JPY hit a 6 week high this morning after President Obama announced a foreclosure program.

Follow the jump for Eurozone and Switzerland charts

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