The makings of global debt crises

Many factors go into creating a crisis of any sort, and debt crises are no different in that regard.

When the growing debt combines with an increasing inability to repay the loans in time, countries might find themselves forced into borrowing from other parties to pay off the initial loans.

This additional borrowing extends the timelines for the eventual repayment.

The problem is that when countries struggle to repay loans, they also find it challenging to borrow more from somebody else.

They often must agree to harsher terms or larger interest rates to access the money.

At this point, many things could make the situation worse.

A global recession could slow economies down, making it more difficult to generate income. A war that breaks out might affect international relations and trade.

The problems of one country could affect other countries too.

Investors may also begin to question the stability of other countries with similar economic conditions.

In addition, countries engaged with each other in trade could see the effects of one country’s downturn spill onto the other.