BusinessWeek Writes: Bad Loans Could Spark an Emerging-Markets Crisis
The world’s largest emerging markets recovered quickly from the 2008 financial crisis because consumers and companies went on a borrowing binge. Now, as those economies cool, bad loans are haunting banks from Turkey to South Africa. India is injecting money into state-run lenders facing a huge rise in soured debt, and Chinese banks have been told to increase provisions against lending losses. “Credit growth in emerging markets has been phenomenal since 2008,” says Satyajit Das, author of a half-dozen books on financial risk.
He blames near-zero-percent interest rates in the U.S. and other developed nations, which have kept borrowing costs artificially low. “Many borrowers will struggle to repay the debt,” he says. “We’re ripe for a new emerging-market crisis.”
Could spark an emerging-markets crisis? You think? How about will spark an emerging-market crisis. How about its already happening in countries like India with their currency being in a free fall.
This is a systemic issue that comes from a singular source of low interest rates propagated by the FED. Of course everyone will borrow as much as they can when financing is flowing freely and interest rates are close to zero. Particularly those in a week financial position. It allows them to survive for a little bit longer and they have nothing to lose. Yet, there is no chance in hell that these companies or borrowers can ever repair these loans. Particularly not when both the US Economy and its financial markets are facing strong headwinds. The outcome? Massive defaults and substantial equity price declines in most emerging markets.
Especially when you take the 2014-2017 bear market in the US into consideration (forecasted based on my mathematical timing work). While the US market is set for a 30-50% haircut, most emerging markets will not fare as well.
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