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From Kirsten Bischoff, Opalesque New York:
External debt of the G7 countries peaked in 2008, with many of these economies at extreme risk of collapse. The trouble in Iceland (which had a debt to GDP ratio of more than 900%) served as a loud warning to Ireland (750% in Q109), the United Kingdom (336% in Q109), the Netherlands, the US and others.
Hedge fund advisory Hennessee Group reported on Thursday that these external debt ratios have lowered significantly from their all time highs. However, the firm also reported that any positive outcome from the reduction of external debt ratios may be offset by the driver of that decrease in debt – the dramatic slowing of bank lending.
After years of misallocation of capital, lending needs to contract for a normal and healthy reallocation of capital.
“Banks are focused and will continue to be focused on repairing their balance sheets, trying to keep their equity holders happy, and trying to stay liquid and keep their business lines functioning, and a contraction in lending may be a necessary avenue to those goals,” Daniel Solomon, President and COO of New York-based financial advisor Lyford Group International (www.lyfordfund.com) said to Opalesque.
But the contractions i...................... To view our full article Click here
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