What is Debt Crisis?

Many countries around the world are caught in the vicious cycle of debts and the resulting skyrocketing interest payments. After a period of time the interest payment increases steadily and becomes almost half the National Foreign Currency Reserves. This has happened in Latin American and Caribbean countries in the past, triggering huge money problems. It could happen anywhere if the Government of the day is irresponsible in its spending policies .

Typically this happens when governments borrow more to pay existing loans or to finance infrastructure projects and such big ticket items. Across the developing nations, this was felt when the US banks raised increased interest rates without warning and with utter disregard to existing agreements; many other banks followed suit and left third world countries floundering with astronomical amounts of debt. It's good to know bankruptcy law.

Though some efforts were made to refinance and reduce the burden on the cash-strapped developing countries and thus avert debt crisis, it was only for cosmetic purposes; in the years 1982-96, Latin American and Caribbean countries have paid $739 billion in interest alone, which is more than the outstanding principal!!! But these countries are still forced to borrow from these Shylocks to fund their education programs, healthcare, etc. Then the ‘Washington Consensus’ evolved which made it mandatory for wealthy northern nations to offer some debt relief to the less fortunate developing nations.

Such debt repayment agreements are overseen and implemented by the World Bank and the IMF; they may require raising interest rates, or liberalizing trade or increasing export oriented production, etc. But though the intentions were good, in actuality it only served to worsen the situation; it undermined local industry, increased unemployment thereby leading to more poor people and denied credit to farmers and small entrepreneurs. Is it any wonder that there is a debt crisis looming? There may be some debt law suit or two in the works.

In the case of the average Canadian, these tough economic times are raising costs everywhere; so some of us are living on credit, begging from Peter to pay Paul; if you are struggling to make ends meet and are living on credit while debts are piling up, there is always help at hand. If you are facing a financially tough situation, with debts piling up and no way of repaying them, then you are in a debt crisis.

The many and varied options available for someone facing a debt crisis are consumer proposal, reorganization and lastly bankruptcy. There are agencies and consultancies that can help one explore their options and advise on the best viable option after a complete assessment of all your outstanding dues. Bankruptcy is not a taboo and it helps one to start over and at least your creditors will recover some of their debts. There are bankruptcy alternatives, namely debt settlement.

Some experts in the banking industry blame the Bank of Canada and its flawed policies and the federal government for the looming debt crisis, as this revised policy compounded the problem by increased interest rates;
While some experts argue for lesser government spending, others want the government to spend judiciously on schemes to generate employment, thereby boosting the economy. What is a Debt Crisis?

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