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Wednesday, January 07, 2009

The IMF system begins to fail

Ecuador defaults on foreign debt:

Ecuador’s president announced in early December that his country would not be paying the interest on its foreign debt in 2009, repudiating it as “illegal.” The value of the bonds defaulted on amounts to 19% of GDP.

Given the magnitude of the problems being experienced by massive debtors, the threat of not being able to borrow more money in the future has never looked more toothless. Contractions are survivable, but not when you're leveraged, which is why those whose revenue depends upon loan-making fight tooth and nail against permitting the business cycle to take its course.

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