Debt defaults, the country goes bankrupt! The first country to fall under the tide of dollar rate hikes appears

time:2023-01-30 05:39:04source:chakarski.com author:Hot industry
Debt defaults, the country goes bankrupt! The first country to fall under the tide of dollar rate hikes appears

Recently, the president of Sri Lanka, known as "Tears on the Indian Ocean", declared that the country was officially bankrupt and could not repay its foreign debts! When I wrote about Thailand in the previous article, I mentioned Sri Lanka. Both are tourism countries, and tourism has contributed greatly to the economy. It was also the most severely damaged country in the epidemic, and the economy was hit hard. In addition, commodity prices have soared this year, energy prices have soared, and the United Nations food price index once hit a record high. This has caused prices in Sri Lanka to skyrocket. Sri Lanka has taken many control measures before, such as the suspension of stock market trading, and the adoption of curfew, etc., to no avail. Over the weekend, people finally couldn't bear it anymore and ran to storm the Presidential Palace. Yesterday, both the President and Prime Minister of Sri Lanka resigned. But the funny thing is that after these people ran to the occupied presidential palace, they actually held a party in the swimming pool and luxury suite, and there was no sign of anger or pain. In fact, the fundamental reason for Sri Lanka's bankruptcy is the same as that of many countries in history, that is, too much foreign debt, which happened to coincide with the US interest rate hike cycle. It can be said that every round of U.S. interest rate hike cycle will trigger a violent economic shock, and some countries will fall into economic crisis or even go bankrupt. In the last round of interest rate hikes, Turkey was the most affected. It was also a currency devaluation, foreign exchange reserves were once exhausted, and the capital market bubble burst. Although Sri Lanka's total foreign debt is not large, only more than 50 billion US dollars, but its annual financial revenue is only more than 10 billion US dollars, which has seriously exceeded the warning line. A hike in the U.S. dollar would push Treasury yields higher, which would increase the cost of debt, especially newly borrowed debt. In addition, after the interest rate hike, the dollar will begin to accelerate back to the United States. As a result, the foreign exchange reserves of these countries were stretched, and the exchange rate of their currencies plummeted. At this time, many countries will begin to adopt foreign exchange controls, resulting in a huge premium between the black market exchange rate and the official exchange rate. For example, Argentina's current black market premium is 131% of the official exchange rate. And rising energy and food prices will make imports cost more foreign exchange reserves. These factors are superimposed, and naturally some countries with a single economic structure and huge debt pressure cannot survive. Actually, I think Sri Lanka is just an appetizer. Look at the euro, which has hit a 20-year low against the dollar. The more important signal is that even Germany, a traditional exporter, actually ran a trade deficit in May for the first time in 30 years. Among the world's top five economies, the United States has only a deficit, and it has not been able to go through. Except for China, the other three economies, Japan, Germany, and India, all have a rare trade deficit. The yen's exchange rate also hit a 20-year low, and India's exchange rate hit a record low. These historically rare signals all indicate that a bigger storm is still brewing, giving the impression that Europe is facing 2012 again, Asia is facing 1997, and the United States is facing 2008.
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