Latin America & Dollar Loans

From South America a reader has written about the trend down there:

“You know the same thing is happening in Latin America. Tons of dollars have been flowing there recently and dollar borrowing rates have skyrocketed as all US benchmark rates reached record lows. 

Economies are booming and it doesn’t take a genius to see most of it has been funded with cheap dollars flowing from the United States as well as Europe.

Most Latin American countries indeed live on effective two-tier systems as the dollar is readily accepted for payments of most transactions. In particular, mortgages as well as land purchases are usually financed by dollar loans, it’s cheaper, and the lenders usually refuse to have long term exposure to local currencies.

Governments are also usually in the habit of borrowing in dollars. And borrowed they have! Argentina is the key here because they defaulted for political reasons a few years back, and up until now they were being financed by Venezuelan oil money, also for political reasons (Chavez was in the habit of handing out “gifts” in exchange for political favors).

So the short dollar position is indeed a WORLDWIDE issue. It will be very interesting to see what happens if something sparks a run to the USD, like the situation in Europe turning from bad to worse. Dollar borrowers the world over will indeed have a ‘religious experience’ of Biblical proportions!”


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