One of the key problems in understanding debt obligations is the relationship between the interest rate and the financial obligations. Compound interest is among the most commonly used phrases, yet least understood.
The recent earthquake in Haiti is a disaster of epic proportions. It is a humanitarian disaster with an estimated 200,000 dead. It has also caused a catastrophic collapse in confidence in the Haitians’ ability to repay their debts. Haiti is now an insolvent sovereign, by way of natural disaster.
According to the BBC, Greece has unveiled major spending cuts. In my commentary below, I hypothesize a way to calculate a “future going burden” for countries based on data in the BBC article (i.e. based on debt as a percentage of GDP and deficit as a percentage of GDP).
According to the BBC, investors are concerned that Greece may default on its debt. From the article:
This week two-year bond yields have surged to 3.09% from 1.9%. Ten-year Greek bonds had their worst weekly decline since January, with the yield up to 5.3% from 4.99%.
The fallout of the Dubai World default, delaying payment on their debts until May 2010 or so, has not yet unfolded. However, three things are apparent: First, the debts of Dubai World, a large corporation dedicated to Dubai’s development, have been referred to interchangeably with the debt of the sovereign state Dubai. Second, the other emirates of the UAE have refused to bail out Dubai/Dubai World. Third, the marketplace is responding in a way that indicates fragility and that it is bracing for more such defaults.
According to the Globe & Mail, Russia is adding the “Loonie” to its foreign currency reserves (they also followed up with a second story), highlighting a trend towards greater diversity and away from the Greenback.