Tuesday, January 26, 2016

Former Fed Economist Hints That Some Oil Producing Countries May Default

I have already pointed to former Dallas Federal Reserve  economist Gerald O'Drsicoll reporting that regulators may be aiding and abetting banks in not writing down their bad energy loans.

In the same WSJ essay where he makes that charge, he also warns that some oil producing countries may default:
[C]ountries are more prone to default on foreign-held debt than debt held by their own citizens. Especially at risk are energy-producing, emerging-market countries as they have been hit by a double whammy: steep drops in the price of their leading export and rising debt-servicing costs in dollars.
I am not going to predict which specific countries are likely to default because there are many variables, including the varying political situations. Default is as much a political decision as an economic necessity. But one country illustrates the ramifications for the U.S. of a default. Brazil is a large, emerging-market debtor. U.S. banks had $89 billion worth of loan exposure to Brazil as of the middle of last year. 

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