What are extra penalties the developed economies could face

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Reference no: EM131021060

The following appeared in an article in the Wall Street Journal about the bond market in high-income (or developed) countries (that is, the United States and countries in Europe) and the emerging-market countries (that is, Latin American and Asian countries): "In the developed markets, it's been about analyzing the business cycle, and in emerging markets, it's been about solvency," says David Rolley, the co-manager of the Loomis Sayles Global Bond fund. "Now it's not. You have to do both for both." . . . It could ultimately mean that developed economies, the U.S. included, could face extra penalties for the perceived, even if ever-soslight,
risk that they may not repay their debts.

a. What does it mean to say that the emerging markets have been about "solvency"?

b. What are the "extra penalties" the developed economies could face from the increase in perceived risk?

Source: Matthieu Wirz and Matt Phillips, "Sea Change in Map of Global Risk," Wall Street Journal, August 1, 2011.

Reference no: EM131021060

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