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Plausible: Sovereign Default On A Global Scale
By Economic Forecasts & Opinions
In a CNBC interview on Feb. 10, Marc Faber of Gloom, Boom & Doom Report went out on a limb by stating that he is not buying any sovereign debt or bonds, because ALL governments will eventually default, including the United States.
Faber believes some countries like Singapore may fare better due to very little or no debt and large reserves; however, most of the developed world will be severely effected by Greece, bailout or not. In the near term, Faber is relatively optimistic about stocks, but still thinks precious metals will have better returns.
Meanwhile, Jon Levy with Eurasia Group, though sharing an equally gloomy view, does not share the same dire prediction. Levy believes it will be a “long and drawn-out” adjusting process different from country to country.
Sovereign Default On A Global Scale?
Back in December of 2009, Moody's Investors Service reported that there was $49.5 trillion of sovereign debt outstanding. The rating agencies are worried that governments' massive deficit-spending to pull their economies out of last year's crisis won't produce enough growth to pay for itself.
Furthermore, Moody's pointed to the U.S. and the U.K., whose public debt runs to $12.1 trillion and $1.3 trillion, respectively, as two prime candidates that could potentially lose their triple-A ratings in "worst-case scenarios." Analysts are also worried that Japan, plagued by deflation, will be unable to repay a debt that's projected to hit 220% of GDP in 2014.
Last November, the International Monetary Fund projected that the average debt-to-gross domestic product ratio of the 10 advanced country members of the Group of 20 developing and developed nations would mushroom to 118% by 2014.
Inflation & Higher Interest Rate
The recent market jitters could be a self-fulfilling prophecy. Falling bond prices and higher yields will make it even harder for governments to refinance future obligations. That, in turn, will hurt their currencies, and especially the euro zone
Sure, central banks can always print more money. More printing will inevitably lead to run-away hyper inflation, and/or the eventual monetary tightening. Higher interest rate and inflation, of course, will probably push all the sovereign strugglers over the cliff while adding a few new ones.
Either way, there will be some nasty consequences to the global bailouts and deficit spending, including a scenario where the dollar could lose its reserve status. Only time will tell.
In that sense, Faber's prediction, while considered extreme by some, is probably not all that far off.
Side note: Watch how Faber dealt a Bloomberg plug to Dennis Kneale and CNBC in response to Kneale's apparent attempt to embarrass him.
Video source: CNBC
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armstrong's latest cycle work says 2012 will be one for the record books ,,
and that gold as a store of value will go to 5000.
grab your ankles and say ... dipata due dah
I don't understand why Faber keeps saying that Singapore is in good shape. Public debt in Singapore is 124% of GDP. Singapore has one of the highest public debt ratios in the world.
Faber is trying to sell real estate in Singapore...or something.
Yeah... who wants 2-3% inflation when we can have worldwide soverign default?
The rich probably WANT this, they love chaos! Who doesnt?
Top ten dumbest things ever on ZH.
-BBH
Technically a sovereign default is possible all the time. That is the risk of fiat.
Faber is over the top here. Just trying to get attention and selling a book or two.
Is he offering any solutions?
Faber in his latest newsletter stated: The problem for the US is that “real” government debt-to-GDP is not 84% as indicated by Reinhart and Rogoff but around 600%.
He also notes M2 declining in US and China and describes it as an ominous decline that is deflationary.
I've always held firm to the thesis that deflation is the midwife to hyperinflation and would highlight in support of that Faber's further comments that ' even in a hyper-inflationary environment, liquidity evaporates temporarily. '
Would suggest that the quantity of liquidity evaporation will very much define the quality of any hyper-inflation.
We have a free skate while there are troubles in Euroland (should stretch over months not weeks) and then we'll find out just how thin our ice really is.
Declining equities and declining dollar if Treasuries can't find a bid and the Federales try one last monetization stick save?
JW's hyperinflationary depression on Line 1.
Word.
You're a smart dude and valuable contributor. I was taken aback when Faber said we had a couple more years - I thought he had ripped up the script and changed his tune, but then realised he had merely taken the Feds actions to date into consideration. The can *was* successfully kicked - one last time, and not too far.
Even a retarded kid like Timmay can see how obvious it is our destiny is a string of sovereign debt default domino's falling.
It's like a Biblical Jubilee year, but against the will of the banks.
I think it will take a couple of years to fully play out.
-MobBarley
does anyone have his annualized performance track? Sure he's a genius, but he's been making this call for how long? Sure he's right, but what if in the near term he's wrong?
Faber rocks!
Sure would be nice if CNBC did its research. Faber said to buy in March while others were hiding under rocks.
The Rothschilds and the rest of the their shadow banking cronies. They own the Fed and therefore, control the money supply and policy of almost every nation in the world. Bill Gates is small change.
bill gates small change lol and most here looking for gruel from the pavlovian dog named ,, F-TV
And what do the Rothschilds hold as insurance against debt default and currency fires?
That's right, go ahead and sAuy it...
$49.5 trillion of sovereign debt outstanding - somebody is rich!
does anyone know who is the owner of all this debt - i have some services i would like to offer.
In the case of U.S., some of the debt is money that the Social Security Administration lent to the Treasury Department. "The rich" are the suckers who think they're going to receive their full SS payments.
The wealthiest 20-30 countries are the primary holders of most of that 50 trillion. That is what makes the whole thing so potentially scary and why everyone runns to the bathroom and pukes when Iceland, Dubai and Greece go down--everyone owns a little of everyone else. Look at the top holders of our debt: Japan 1.8T, China 1.3T, Great Britain 800B, the arab states, the Netherlands and so on. Pick a country in the EU and look at there sheets from last year and you will see a similar breakdown.
I think El-Erian and Econophile are correct in determining that this whole thing is stuctural, not cyclical.
Between sovereign debt and derivatives there is so much debt disguised as wealth that the bubbly US housing/MBS market, which really had hurt world ecnomy, looks like peanuts.
I feel like we have made this huge earthern structure that is all our shelter, and we created it by digging a big hole in the ground...but we built right over the hole, and support structure with this floor of thin plywood...and all our construction is ready to collapse into this hole...and once it does, it won't even fill hole to start over...because someone made off with most of the good dirt in the process...
if all swaps and soveriegn debt dissappears, what's left?
That's right. In a normal functioning economy the money should be circulating. The rich need to spend that money and get it into the hands of the 'lower class' so they can retire those debts. Of course we can't have that. It's better to keep us and our children as debt slaves and not give us a chance to pay off the debts so they keep piling it on whether we want it or not.
Where did you learn economics Winisk, The Soviet Union?
More to the point, where did all the state-employed economists, policy wonks, and politicians (who have got us to this point) learn economics?
They are learning it right now. Just like they learned it back in the 1930s.
/end-snark
By all means show me a country who has a healthy economy that isn't ridden with debt problems that threaten to destabilize the lives of so many people. It's obviously not the US or Europe. I'm just a layman trying to exercise my common sense. I really want to learn how a good economy functions if I am guilty of faulty reasoning.
You lost him when you said "The rich need to..."
The rich don' need to do jack, you commie beotches.
Greed; it's not just about the money, it's also about being antiCommunist!
cougar
Hah - they couldn't wait to shoo Faber off the stage. The other guest Levy admits the premise of Faber's argument but believes that extend & pretend will give time for "adjustment", specifically in the Eurozone. I would counter that Europeans are much more vocal and demonstrative about "adjustments", and the Fed won't be comfortable about months of (potentially violent) demonstrations being played out on CNN in response to the rug being pulled out on social programs in the PIIGS. If control of the narrative is lost, then Americans might get the wrong idea when it is their turn.
Exactly. Either way, government economic control and central banking will be revealed as frauds, incompetents, and failures, and this results in broken government promises, which in turn results in massive realignment of governments. And that, of course, is the thing that they will fight to the last moment. This has always been really simple to understand if seen in the proper context.
You have people who believe you can pile up debt unendlessly and you have people who believe there is a limit in debt compounding. I belong to the latter group. Von Mises already told us: it is either a huge deflationary collapse or prolonging the agony by destruction of the currency. They choose the 2nd option, but the outcome will be the same.
yep good point .. most have no understanding of mises .. ,, and are mired in a quagmire of pavlovian dog poo,, more commonly called keynesian exonomics ..
even here at the zero point as a person reads the stuff a large pile of muck is swarmed over,, hacking at the leaves , with nary a clue of the under"lie" ing rot ..
either way it is distruction of the currency ,,
Yes end it now, save the dollar kill the bond.
Prolong and destroy both the bond and the dollar.