The debt avalanches. Once it accumulates enough mass, and momentum is not sufficient to stop its collapse, it overwhelms its host, and will come crashing down on the rest of the system, too.
Across the planet, there are hundreds of governments – local, state and national – as well as business and households who are reaching a breaking point. Already drowning in debt, many are about to default on loan repayments, and thus set off a series of debt crises that will be met with market chaos and a tightening of easy credit for those who are most vulnerable to implosion.
With Puerto Rico also timed for a major default that will burden the United States, Mexico is ready to crash, and bracing for impact. Its biggest construction firm, which has been dependent upon government contracts that are now drying up, is facing default on a $31 million interest bill.
And so it begins…
In August, the bonds of Mexico’s biggest construction company, ICA, had the dubious honor of being the worst performing corporate bonds across all emerging markets. At a time when emerging economies are slowing down and the total debt exposure of EM corporations has never been higher, this was no mean feat. […]
Yesterday the company’s shares plummeted 22% on news that it would use a 30-day grace period to make a $31 million interest payment that was due this week. Today its shares, which have lost more than 75% of their value since January, fell a further 8% to 3.76 pesos, their lowest point in 21 years.
To make matters worse, the builder recently hired corporate restructuring specialist Rothschild & Co. as financial adviser, fuelling speculation that it will soon seek debt relief.
[…]
If ICA does fail to pay, it would be Mexico’s biggest bond default since the tumultuous days of the Tequila Crisis 20 years ago.
The revenue reported by the company, which depends on the government for a majority of its contracts, has sharply declined this year amidst infrastructure spending cutbacks, while the weaker peso has exacerbated the company’s leverage ratios.
As WOLF STREET previously reported (here and here), many Mexican corporations are acutely vulnerable to a strengthening dollar and rising U.S. interest rates. The sudden rise in central bank-engendered liquidity after the outbreak of the Global Financial Crisis enabled Mexico’s biggest companies to borrow from the international markets in much larger amounts and for much longer periods than at any other time in history. And the slide of the peso against the dollar has significantly increased the amount of leverage at some companies.
As the article suggests, a sluggish Mexican economy has made this company all-too-vulnerable to market failure. The dead weight of its collapse is liable to do some damage across much of the global economic landscape. The real danger is that enough incidents could set off a domino of debt bomb explosions that risk taking the whole thing with it in a brilliant fiery scene of destruction.
Goldman Sachs, so often at heart of these financial matters, recently proclaimed that we are in the third wave of the financial crisis that reaches back to before 2008 and includes other major shocks to the global economy. According to Goldman:
This wave is characterised by rock-bottom commodities prices… This triple whammy has its roots in the response to the first two waves of crisis — the banking collapse and European sovereign-debt crisis — and it is all part of the so-called debt supercycle of the past few decades.
Central banks all rushed to lower interest rates in response to the first two debt-fueled crises, encouraging investors to lend in emerging markets such as China for a decent return.
Now that interest rates are looking as if they might go up, lenders are heading for the exits and investors are pulling out of commodities, which are closely linked to the fate of the emerging economies.
And that is exactly what is going on today.
Energy and commodity prices are bottoming out, and people are stressing over the shortfalls in revenue. Weak economic systems and promises under socialism and welfare systems are making the balance sheets impossible to rectify. As lenders are demanding repayment, third world nations are under extra pressure due to a “strong” dollar that costs more to repay.
Wolf Street explains:
The Bank of International Settlements notes that the external debt in Mexico is the fourth highest of 17 emerging economies. The three economies ahead of Mexico are Chile, Malaysia and Peru. So serious is the problem that the Bank of Mexico just released a carefully worded alert on the potential dangers of excessive dollar-denominated corporate debt.
[…] Companies that have sharply increased their foreign currency-denominated debt are meanwhile advised to pay close attention to the risks they face, especially if most of their revenues are denominated in pesos.
In the case of ICA, almost all of the company’s contracts are denominated in pesos, while $1.35 billion of its debt is denominated in dollars. That’s the debt it’s now struggling to pay.
[…]
This explosion of dollar-denominated debt was not just the result of the strengthening dollar; many companies were also desperate to take advantage of exceptionally low interest rates by applying for more debt with favorable conditions. In a perversely ironic twist, out of fear that the Fed may be about to take away the ZIRP punch bowl, some of Mexico’s biggest corporations embarked on one last dollar-borrowing binge.
Seeing as how these debt bombs cannot be localized and contained, and that they are set to go off across the planet, this very possibly could be the beginning of some major impacts in global finance.
Everything is vulnerable, particularly for those depending upon income and services from a failing system. For investors, all that is leveraged, collateralized and sold into derivatives is in danger of catching flame, too. The massive amount of true global debt – when unfulfilled obligations such as pensions that cannot be paid for are taken into account – is absolutely impossible to fix through conventional thinking.
There will be many people left holding the bag, until or unless the debts are wiped clean and the system sees a reset.
Read more:
Dozens of Nations Deep in Debt: “Bankruptcy Of The Planet Accelerates”
Goldman Sachs: The Third Wave of the Financial Crisis Is Upon Us
Puerto Rico Debt Bomb About To Explode: “Social Unrest May Be Unavoidable”
The Massive Debt Bomb is Going to Explode: “We Are Reaching a Limit”
Let them eat beans.
HILARIOUS PRANK ON ILLEGALS!
https://www.youtube.com/watch?v=39JYVm8CrXc
Weird, I thought the American taxpayer bailed out US banks and gave them piles of cash so they could loan the money at VERY LOW interest rates to US businesses so that US business would invest the low interest money into new equipment in order to grow their business and in turn our economy would grow and recover?????
Silly me, how effin stupid could I be?
No mate…just made a small group of psychopathic, sociopathic and narcissistic wankers rich by handing over trillions of dollars of public money.
Gee whiz!!! Someone here said in 2012 that the SWHTF in 2015. Who was that masked man ??? He said that the next crash would be deflationary in character and that everyone here should put ten dollar bills in number ten cans.
Well, did ya ??? 🙂
Good afternoon,
Remember me. I’M BACK…..
I persist in telling everybody what I’m doing————
Same recommendation as before – new 10’s in cans.
good luck to all of you,
/mushroom.
It’s been too long 🙂
Welcome back Mushroom.
Hey Mushroom!!! I guess the rumor of your demise was greatly exaggerated !!! 🙂
You should check this out mate, in America we call this kind of post “sarcasim”.
Yep, this is one of those things that all is well until the day it isn’t ! Nothing more than another giant illusion, just one of many we all live under here in USSA today !
Well lo and behold what a surprise. I didn’t realize Messi’co even HAD a economy to default from. Well it does appear their citizens have proven they know how to swim. We need some fresh water crocs from Australia transplanted over here to the Rio Grand being(s) our mixed mutt leader doesn’t have the “BALLs TO ERECT the WALL.
‘AN’ economy (fuck you AE you spell check freak)
The Chestatin Demon is coming after all of us. The Chestatin Demon from hell. GET READY!
Tired of hearing about that effing wall to be paid for by Mexico.
One… there has been technology available for well over 20 years to shut done that dang border, including the drug tunnels underneath. 100 corporations signed a petition to President Obama and Congress to stop deportations, and so it came to pass even though Obama had already deported more than any other modern President. The letter was created by the Chamber of Commerce.
Two… the major banksters (BoA Chase WF. etc.) are known to be laundering cartel drug money… known by FBI and CIA. Squashed by Bush’s whitehouse. Obama, ever the banksters’ boy, keeps ignoring that. All started by Ronnie Ray gun to derail the black civil rights movement. The whole mess overshot the blacks and now every neighborhood has its own drug problems.
The US has tens of millions of Mexicans we can spare, if Mexico needs help rebuilding their economy.
We could probably throw in a few hundred thousand “Syrians,” too.
OH No Not Mexico!!
Why do mexicans only cross the border 2 at a time?
Because the sign says “no TRESspassing 🙂
Why aren’t there any medalists on the Mexican Olympic swim team?
They’re all in Texas.
Why won’t a Mexican go bow hunting ? He doesn’t habenero
Classic
Why can’t you get a blowjob in mexico?
Cause the cocksuckers are all over here.
Why were there only 300 mexicans at the alamo?
They only had 4 cars…
Why did the mexican whorehouse go out of business?
To many frijoles..
Why do mexicans have small steering wheels?
So they can drive with handcuffs on…
How do you know when the orientals are moving into a neighborhood?
The mexicans all run out and buy car insurance!
How did the Orig manuscript of anne franks diary get so many parts written in Ball Point Pen Ink, almost a full Decade before ball point pens got invented?
There are still some of them over in Mexico. They are simply called Senor Eaters.
Im having a flash of prophecy that looks alot like the herd on the walking dead commin to America
Godsoldier
That is what it means. If we think illegal’s are bad now just let Mexico crash. They have quite a bit of oil too. I bet the low prices are putting pressure on them in a big way as well. We will see a non stop stream of people coming from Mexico. 10 times what it is now. This I believe is by design just like the immigration crisis in Europe. Pain is coming world wide and probably war.
Genius
Our conversation from yesterday. You misunderstood one other comment I made. I guarded recruiting stations while I was armed. It was after the shootings in Tennessee. Whether you agree with the troops or not, one thing we can agree on is they should be able to protect themselves against these Muslim nut jobs. That is why I was there. I was trying to show the sheep the absurdity of it all. Troops are trained to use weapons and then not allowed to carry side arms against idiot Muslims.
Mike, Damn man that is bullshit. Thats what they are for, to protect the homeland. I guess it just shows the way that the ones in charge think about them. If the people ever do win the was against the ptb I don’t think the muzzies will fair to well.
“There will be many people left holding the bag, until or unless the debts are wiped clean and the system sees a reset.”
Sounds good. The problem with that is that every debt is someone else’s asset on the books. You would be wiping out pension funds and savings accounts of everyone with a total reset of debt.
In fact, if all debt were wiped clean, all savings would also be wiped clean since in a debt based monetary system all “money” is created as both a debt and an asset.
This is why the system will crash and there will be no “reset”.
Wouldn’t this be a perfect reason to have solid assets or commodities instead of fiat money?
So, who will Trump get to pay for his wall now!
China !!! 🙂
Put in a bid for 2,004,000.00 . A million for me, a million for you, well get the mexicans to do it for 4,000 🙂
All jobs will be coming back here from overseas. If we have the means we will definitely be able to hire cheap labor. lol
At Leats McCain wont have to travel so far to bang his head against the wall once its built eh.
If everyone, countries, cities, states, corporations owe all this money, who do they owe it to? If everyone owes everybody money why not call it even & start all over. Somebody is going to be rich & someone is going to be broke so let’s call it a day, everybody go home & start all over tomorrow.
Do they/we owe a bank this money? Another country this money? If we are going broke paying country A. And country A is going broke paying country B. And country B is going broke paying us it’s a wash.
Defaulting by a Mexican Construction company is going to cause worldwide depression. Like DAAAAA! Eat a Chihuahua dude. What do you get out of this type of nonsense? Did your parents have any children that lived?
Hahaha
Been waiting for the chance to buy some nice Mexican property on the cheap!
O is a commie Rothschild plant……diluting what is left of NO BORDERS AMERICA !
Oxymoron, Rothschild and commie are mutually exclusive. Commies lost.
Massive government size and control are enemies of freedom. Large, too-big-to-fail, financial institutions are blood-suckers on the people. What we have now in the U.S are the banks in bed with the federal government to pad and protect their wealth (banks) and control (the feds). The Federal Reserve is an institution created by the ultrarich to manipulate the U.S. financial system. Don’t know where this is all going to end but fight hard for the audit-the-Fed legislation being championed by Rand Paul. You may not be Rand Paul fan but this needs to be done.
Last time this happened Clinton used the currency stabilization fund to rescue them because a stable Mexican currency suited his purpose at the time.
Let’s see what Obama does, I’m think a collapsed Mexico might better suit his purposes than a rescued one.
Wall built be Mexicans with money we get from china sounds doable! They work on the cheap! Get rid of fed ,banks to big to fail,corps to big to fail, bloodsuckers sounds like it might happen .
Refuges sent home ,Trump For Pres. Maybe he will FIRE everybody else. More of that hopey
changey brought to you by our current administration. Notice my PC did not mention race comment on white house kinda like the non terrorist we have shooting the place up. If it
Walks like a duck and quacks like a duck maybe it’s a …………wait for it,……..duck. QUACK!
SORRY – but a measly $31million loan default isn’t going to have an effect on anything but the holder of the loan. Stop with the sky is falling shit please.
The 31 mil is not the debt, it’s the interest on the debt. The debt itself is billions and it could start a domino affect.
The past several month we’ve been going through a lot of layoffs etc… in the oilfields especially. given a lot of illegals find work in the oilfields during a boom I would be willing to bet they are for the most part unemployed at this time and for the foreseeable future. So with our economy fubared, the Mesicans are thinking about going home. In South America, they don’t want the freeloaders coming back. So out come the press releases. “All of South America is going broke”. These people spent years pawning off their freeloaders off on us and they will go to any length to keep freeloaders over here. I bet they have bought airtime on Mexican radio here in the US to spread the word. Jus’ a theory.
redneck your a complete joke. I hire illegals all the time. I have been hiring them for over 40 years. Some are now legal and some in the process, others never go through it and go back home after making enough money to do what they set out to do. I would hire an illegal over a redneck in a heartbeat. They work their ass off for me, and put food on my table and fed my family and every other lazy rednecks family too for the 40 plus years that I have been in business! By me taking taxes both federal and state by paying them with check. Not cash. They put into the welfare system that keeps all the lazy rednecks on welfare in the state I live in, and most will never see that money when they turn 65. I personally know of some that now live in Mexico and they worked here 40 years plus, and they never got a dime back that was taken out of their checks that the government kept. So you calling all these people freeloaders is bullshit. I could not have sent my own kids to the colleges that they went to had it not been for these men that worked for me. You need to stop drinking the koolaid that somehow they are freeloading and taking from you. That’s b.s.
It could be. I lived in Mexico a few years. They like regular checks from the losers but can’t stand for them to come home more than a month.