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The Debt of Ghost Towns & Ghost Countries

June 21, 2013

The population of the US city of Detroit peaked in 1950 at 1.8 million. In the census of 2010, the population, at 700,000, was barely 40% of the 1950 population. Skilled labour, which helped in causing the debt load of Detroit to zoom, had moved out, leaving the poorer and unskilled lot to face the music of debt servicing. The city is now on the verge of defaulting on its debt and its pension obligations to poorer citizens.

About a year ago, in a piece The Moral Hazard of Open Borders On Sovereign Creditworthiness (, we had predicted that skilled labour will flee the indebted countries of Europe into the welcoming arms of Germany. That is precisely what is happening. Spain’s engineers are fleeing to Germany to escape unemployment at home. This benefits German companies while hurting the ability of the government of Spain to repay its debt.

Over the next few years, we will see more and more sovereign/sub sovereign debt that will have to be written off as skilled labour flees those debt holes into oasis’ that welcome them. They would have helped create the debt, but will not be involved in debt servicing- leaving that task to poorer citizens who do not have the skills to emigrate.


From → Credit Analysis

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