Saturday, October 18, 2008

The Crisis is Spreading

The crisis is now spreading to other economies (see this article), like Iceland, that relied heavily on borrowing at low interest rates to support their debt. Now repayment is very difficult.
Following the virtual seizing up of the Icelandic economy, countries such as Hungary, Argentina and Pakistan look vulnerable as they struggle to pay their bills. These countries took on large amounts of debt in the good times, when credit was cheap, and are now running out of money to pay them off because banks and investors refuse to lend to them.
This is the contagion. But while the crisis causes a recession in the US, the cost to emerging economies may be much greater.

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