Which Country Would Be The Most Insulated From A U.S. Default Or Dollar Crash?
- Thread starter hellblazer
- Start date
That's why the question says "most insulated", not "completely insulated".
And Europe is probably going to crash first, so those are bad suggestions.
Also, communist dictatorships are bad suggestions.
It'd be nice to get some input from people living in other countries with knowledge of how dependent/interconnected their nation is with the U.S.
I'm thinking nations with good natural resources of their own, good manufacturing, stable currency, etc..
I think the answer (in terms of China) relies on the state of China's middle class...and it's growth.
If China's involvement in Africa and South America help to boost the buying power of their middle classes, perhaps we'll see a shift, and the US won't be as important.
If China's involvement in Africa and South America help to boost the buying power of their middle classes, perhaps we'll see a shift, and the US won't be as important.
Right well...
Not Western Europe because it's directly connected to the US. Including switzerland (Check their GDP growth in 2008. Fairly similar to the rest of Europe).
Not Russia because it's major export is oil (which the US plays a big role in obviously).
Not Eastern Europe because it's dependent on Russia.
Not India, China or Japan because they are too dependent on the US + Europe.
Not Australia because it's practically an addition to europe.
Not South America because it relies a lot on the US/ Europe/ China (Brazil exports TONS to China).
Not Northern Africa because it relies too heavily on Europe (I think?).
To be honest the world is far too inter-connected these days to avoid the shit of any problems. It would be best to head somewhere that was fairly remote, un-developed and self-reliant. I'm sure there are areas in siberia/ africa that felt very few effects from the last recession.
Not Western Europe because it's directly connected to the US. Including switzerland (Check their GDP growth in 2008. Fairly similar to the rest of Europe).
Not Russia because it's major export is oil (which the US plays a big role in obviously).
Not Eastern Europe because it's dependent on Russia.
Not India, China or Japan because they are too dependent on the US + Europe.
Not Australia because it's practically an addition to europe.
Not South America because it relies a lot on the US/ Europe/ China (Brazil exports TONS to China).
Not Northern Africa because it relies too heavily on Europe (I think?).
To be honest the world is far too inter-connected these days to avoid the shit of any problems. It would be best to head somewhere that was fairly remote, un-developed and self-reliant. I'm sure there are areas in siberia/ africa that felt very few effects from the last recession.
this is probably the best answer... the real isn't pegged to the dollar, trade only makes up 10% of their GDP and they have a robust/growing economy.
Brazil has been in a worrying state recently, it hasn't been growing as much as it should be. It's currently experiencing terrible growth performance (the worst in a decade).
Also brazil has:
- $250 billion exports with China and then the US as main trading partners
- $220 billion imports with the US and then China as main trading partners
- $400 billion external debt
- $375 billion foreign reserves (More than the UK and US combined!)
i said best, not good. you may be right. i'd be interested in your thoughts as a better substitute, we're all gonna need the answer to this question soon.
First, the consequences of a default and a dollar crash would, at least in the short-term, likely not be the same. Also it depends on how you define 'crash'. A semi-controlled devaluation of 50% over 2 to 5 years? Worse?
In the case of a default (assuming an actual default and not a blip/technical default), all dollar-based credit, and by extension all dollar-based trade, would virtually grind to a halt. Take a look at the Baltic Index to see what happened in '08 to get an idea.
Although there might be a few short-term spikes in commodities like gold, with global credit disappearing, commodities would crash. $1150 gold, $45 oil.
So you have two major global problems: no trade; and, dropping commodity prices. Add to that the fact that U.S. long-term interest rates would be pushing towards 6% (or higher if no resolution was in sight) and the USD fluctuating madly - there would be spikes upwards as the default would result in a shortage and institutions would have to cover their exposure - and significant drops.
So those least exposed to a default would have little in the way of dollar-based exports, a strong balance of payments, little international debt owed, and internal trade/manufacturing/production. Or those countries in which the situation can't get any/much worse. Longer term, countries with an internal infrastructure and the ability to feed themselves will likely be in fairly strong positions.
With all of this in mind, I'd pick Uruguay (also the only country in the Americas not to suffer a recession in the '07 - '09 period).
Or perhaps Alaska (though it could be sold back to Russia to pay off debts.)
Also keep in mind that if a default transpires, that China and other US creditors will own the US. The US stock market will fall be 15% to 30% (2011 study by Credit Suisse). At the same time the US gov't holdings of the Chinese (and other) government will have dropped in value. The creditors won't be able to sell the debt holdings all at once so they'll be better off using those funds to buy up devalued US dollar (or pegged currency) based assets while they confiscate (or at least threaten to) US corporate assets in China as payment.
As for the devaluation - just look at what's happened since the 1913 meeting on Jekyll Island and draw your own conclusions.
tl;dr Uruguay or Alaska
In the case of a default (assuming an actual default and not a blip/technical default), all dollar-based credit, and by extension all dollar-based trade, would virtually grind to a halt. Take a look at the Baltic Index to see what happened in '08 to get an idea.
Although there might be a few short-term spikes in commodities like gold, with global credit disappearing, commodities would crash. $1150 gold, $45 oil.
So you have two major global problems: no trade; and, dropping commodity prices. Add to that the fact that U.S. long-term interest rates would be pushing towards 6% (or higher if no resolution was in sight) and the USD fluctuating madly - there would be spikes upwards as the default would result in a shortage and institutions would have to cover their exposure - and significant drops.
So those least exposed to a default would have little in the way of dollar-based exports, a strong balance of payments, little international debt owed, and internal trade/manufacturing/production. Or those countries in which the situation can't get any/much worse. Longer term, countries with an internal infrastructure and the ability to feed themselves will likely be in fairly strong positions.
With all of this in mind, I'd pick Uruguay (also the only country in the Americas not to suffer a recession in the '07 - '09 period).
Or perhaps Alaska (though it could be sold back to Russia to pay off debts.)
Also keep in mind that if a default transpires, that China and other US creditors will own the US. The US stock market will fall be 15% to 30% (2011 study by Credit Suisse). At the same time the US gov't holdings of the Chinese (and other) government will have dropped in value. The creditors won't be able to sell the debt holdings all at once so they'll be better off using those funds to buy up devalued US dollar (or pegged currency) based assets while they confiscate (or at least threaten to) US corporate assets in China as payment.
As for the devaluation - just look at what's happened since the 1913 meeting on Jekyll Island and draw your own conclusions.
tl;dr Uruguay or Alaska
If I moved to Uruguay to avoid recession, I'd probably die of depression. The only place there with a pulse is Punta del Este and that's only during the South American summer. At least the Brazilians will still be partying as their ship sinks. See you in Florianopolis 
http://www.singledudetravel.com/2012/02/the-single-dudes-guide-to-montevideo-uruguay/
http://www.singledudetravel.com/2012/02/the-single-dudes-guide-to-montevideo-uruguay/