The world is entering a third stage of a rolling debt crisis
The one parent comment here addresses consumer credit&#x2F;debt in the US.<p>The article is about unsustainable debt building up in emerging markets due to attractive interest rates on risky bonds in an environment where safe, conventional returns of 5-9% are extremely hard to come by:<p><i>A dollar-denominated government bond issued in 2012 by Zambia, a copper-rich country with an average GDP per person of $1,700 a year, offered just 5.4% interest; even so, it was 24 times oversubscribed as rich-world investors clamoured to buy. The following year a state-backed tuna-fishing venture in Mozambique, a country even poorer than Zambia, was able to raise $850m at an interest rate of 8.5%.</i><p>Now data from the IMF is showing that corporations and governments were probably not investing these loans into profitable activities:<p><i>Growing debt in emerging markets is not of itself something to worry about. It may be that savings are getting into local capital markets more effectively or that there are more, better investment opportunities. Sadly, those happy possibilities do not seem to account for what is now going on. While corporate leverage in emerging markets has been going up, corporate profitability there has fallen, says the IMF. There is plenty of evidence to suggest that rapid debt build-ups are the hallmarks of periods of indiscriminate lending that eventually end in tears.</i><p>So this article has little to do with the average American consumer. It&#x27;s about banks looking for higher rates of returns in riskier markets and doing dumb things with their money. If they have not sufficiently calculated and priced out these risks, which is what happened in 2007 (purposefully), then a lot of this debt might start defaulting, which could lead to another financial contraction as banks find themselves yet again with risky, misvalued assets on their balance sheets, eating up an unsustainable portion of their portfolios and limiting their ability to lend.<p>The difference is that screwing up corporate lending might not be as damaging as fudging consumer lending, such as mispriced and unsecured mortgages. The author draws this conclusion from the findings of one OECD paper, so take that with a grain of salt.<p>Does anyone want to discuss the actual contents of the article, rather than what they think the title implies?