By Kevin Grewal, Editorial Director at www.SmartStops.net
The most recent worries about Dubai World and its ability to pay its debts has opened up a whole new can of worms and have many questioning whether or not the delinquencies of sovereign debt could potentially put a damper on a global economic recovery.
Sovereign debt is the total amount of sovereign bonds, which are bonds issued in foreign currencies, owed to bond holders. In general, the issue of delinquencies in these bonds, or type of debt, arises when a nation cannot afford to repurchase the necessary foreign currency when the bonds mature and repayment is due.
From a macro perspective, if sovereign debt defaults get out of control, then the flow of global credit is in jeopardy, which will likely put a damper of the entire global financial system. In addition to this, there are the potential consequences of having political instability and social unrest, which will likely further weaken the global financial system.