IMF forecasts an increase in toxic debt
One of the issues of great interest to the global economy — and to the currency market — is that of toxic debt. Toxic debt are those loans that banks hold that are likely to default. These are sometimes also referred to as toxic assets.
Concerns about toxic debt focus on the fact that as long as banks continue to absorb losses from these loans, the financial system remains in turmoil. This spills over to the FX market and affects which currencies gain and which fall.
The International Monetary Fund, however, has released a report that indicates that toxic debt could reach trillion worldwide. Deterioration in U.S. assets alone is expected to be about .2 trillion by the end of 2010.
Until banks can get this toxic assets off their balance sheets and begin moving on, there is a good chance that the current upheaval will remain in full force.
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