Latvian Deflation will Increase their Debt Burden

This article claims that falling prices will increase Latvia’s burden of debt. It is not falling prices, but falling interest rates, that increase the burden of debt (and it is not just Latvia but the whole world, which has falling interest rates). Think of borrowing at the high level as selling a bond. Think of selling a bond as being short a bond. If the rate of interest falls, the price rises. You are short a security and the price has risen. This article by Keith Weiner explains the falling interest rate and capital destruction.

India’s debt is one level above junk and S&P reaffirms its negative outlook. I especially love the use of the term “shore up”, as in India is supposedly doing this. Say a man works and earns a wage of $18,000. He owes $8,800 on a line of credit paying 7.4%. What, exactly, can he do to “shore up” his situation? Keep in mind that the reason he borrowed this money was to buy essentials that he cannot do without. I don’t believe India has been reducing its debt anyway.

The US dollar index has reached a three-year high so far. The dollar will be the last currency to fall, and though there will likely be plenty of big volatility along the way (as we’ve seen with gold recently) the other currencies will be heading downwards against the dollar. As gold is the commodity with the least-falling marginal utility, the dollar is the irredeemable currency with the least-falling marginal utility. Also, the other currencies are dollar derivatives.