Debt levels in many G10 countries have exploded. This is especially the case with Great Britain who should see debt to GDP levels reach above 75% of GDP. Great Britain is again being called a "banana republic" of finance and the "sick man of Europe", but an FT editorial "Sudden Debt?" focuses on the fact that this is a crisis that can be weathered. Gilt rates have increased during this British recession yet have stayed, to date, at levels that can be financed. However, this may only continue if there is the belief that the current fiscal medicine cocktail will start to have a positive effect.
What Great Britain and other G10 countries do not have is the burden of "original sin". Emerging markets have been forced to issue debt in foreign currencies to attract buyers. Hence, they do have the problem of increasing debt burden when there is a currency depreciation. This may be the most important savings issue for the US as a reserve currency. Emerging markets may be forced to issue in dollars and not in local currencies as the financial crisis continues. This is a reversal of the trend to local currencies during the emerging market cmmodity boom in the 2005-2008 period.
What Great Britain and other G10 countries do not have is the burden of "original sin". Emerging markets have been forced to issue debt in foreign currencies to attract buyers. Hence, they do have the problem of increasing debt burden when there is a currency depreciation. This may be the most important savings issue for the US as a reserve currency. Emerging markets may be forced to issue in dollars and not in local currencies as the financial crisis continues. This is a reversal of the trend to local currencies during the emerging market cmmodity boom in the 2005-2008 period.
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