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Sooner rather than later the foreign appetite for U.S. debt will wane, simply because foreign investors will discover they have concentrated positions in assets (U.S. Treasuries) that are falling in value and denominated in a currency that is being debased.
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Emerging market public-debt loads are generally manageable and denominated in local currencies.
Contracts would probably have been struck under English law and denominated in dollars.
They used to be dominated by junk bonds issued by sovereign nations and denominated in dollars.
And if the debt is denominated in a foreign currency or held largely by foreign creditors, then a debt crisis can be compounded by a currency crisis.The table shows the main sources of vulnerability for a range of OECD countries.
The Chinese strategy has been to build up commodity stockpiles, buy natural resource producing companies, accumulate precious metals, and push for bonds that are denominated in a basket of currencies.
In both cases, runs on the banking system ended up with a partial freezing of bank deposits, which in the case of Argentina, triggered a full-fledged banking crisis and a subsequent conversion of deposits denominated in a foreign currency into domestic currency that led to a restructuring of domestic liabilities -- at a high cost for small domestic savers.
Its larceny was denominated in a half-dozen currencies.
"But I question holding assets denominated in a depreciating dollar.
But credit is dangerously fickle, especially if it is denominated in a foreign currency.
Similarly, bonds are only attractive as long as they provide a real rate of return, do not default, and most important are denominated in a sound currency.
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