Relationship between CAD and Net Foreign Debt (1 Viewer)

[biscuit]

I know this is a stupid q, but can someone explain to me the relationship between these to things in plain eng?

Just don't get it...
Is it that an increase in net foreign debt will lead to an increase in the amount of servicing required, which will lead to a detoriation of the BOP --> CAD?
Is that right?

 

[adambra]

Yes.......

 

[biscuit]

Ok so thats all it is? i thought it was more complex

 

[underthebridge]

You can add to that and talk about the foreign debt - CAD spiral where after an initial increase in foreign debt, the CAD will increase. Then the ec. will be forced to pay for that CAD by borrow more from foreigners which leads to even more foreign debt and again increases the CAD and so forth. This would see a larger and larger debt servicing burden.

 

[Cityboy]

Its the foreign debt trap, not froeign debt spiral

 

[sk8ie_boi]

I know this is a stupid q, but can someone explain to me the relationship between these to things in plain eng?

Just don't get it...
Is it that an increase in net foreign debt will lead to an increase in the amount of servicing required, which will lead to a detoriation of the BOP --> CAD?
Is that right?

sorry, but could please explain wat servicing is?

 

[RyddeckerSMP]

Paying off the interest.

 

[word.]

basically
a continually increasing net foreign debt will have to be serviced through more foreign borrowing. and to repay that borrowed money we have to borrow again etc. (debt trap scenario) which increases the deficit on the net income component of the current account thus contributing to the CAD