Major Nations Have Debts At 200 Year Highs

GoldCore's picture

Today’s AM fix was USD 1,238.00, EUR 909.56 and GBP 756.54 per ounce.
Friday’s AM fix was USD 1,232.25, EUR 903.01 and GBP 748.45 per ounce.

Gold rose $12.10 or 0.99% Friday, closing at $1,236.40/oz. Silver edged up $0.19 or 0.95% closing at $20.16/oz. Platinum climbed $6.24, or 0.4%, to $1,406.74/oz and palladium fell $0.53 or 0.1%, to $725.72/oz. Gold and silver were both up on the week at 1.83% and 0.63%.

Gold rallied for its fifth day and last week showed its highest margin growth since October on signs of stronger demand from China. Gold ETF products have dropped to levels not seen since the 2008 financial crisis. With speculative hands exiting the market, physical demand may again drive prices.

The IMF published research by Harvard professors, Carmen Reinhart and Kenneth Rogoff, that highlighted that most countries in the Western world will require defaults, higher inflation and a savings tax to save their economies as debt levels reach an astounding 200 year high.

The debt crisis crippling sovereign economies may even require 1930’s style write offs or IMF tools for austerity as seen in the past.  The authors are familiar to the IMF, Rogoff was a former chief economist. They were lauded for their work, This Time is Different: Eight Centuries of Financial Folly,  but stirred controversy latter by suggesting that that growth slows sharply once public debt exceeds 90pc of GDP.

The crux of the paper highlights the following:
1. Wealthy nation’s policy makers are in denial that they are different than poorer nations and feel that their debt can be reduced by austerity cuts, growth, and tinkering.

2. Advanced economies wrote of debt in the 1930s. First World War loans from the U.S. were forgiven when the Hoover Moratorium ended in 1934, giving debt relief worth 24% of GDP to France, 22% to Britain and 19% to Italy.

3. During a further restructuring of the war reparations regime on Germany under the Versailles Treaty, the U.S. itself imposed haircuts on its own creditors worth 16% of GDP in April 1933 when it abandoned the Gold Standard.

4. The policy is essentially a confiscation of savings, mostly achieved by increasing inflation while rigging the system to stop markets taking evasive action. The UK and the U.S. ran negative real interest rates of -2% to -4% for several years after the Second World War. Real rates in Italy and Australia were -5%.

The Telegraph article by Ambrose Evans-Pritchard, illuminates that opponents of the present system find that extreme austerity without offsetting monetary stimulus is the main reason why debts have been spiralling upwards even faster in parts of Southern Europe.

Unstable eurozone states are particularly vulnerable to default because they no longer have their own sovereign currencies, putting them in a similar position as emerging countries that borrowed in U.S. dollars in the 1980s and 1990s. The eurozone is further troubled with an unstable banking system that may still require significant recapitalization.

As seen with the 2008 financial crisis, a catastrophe across the pond will ripple and affect all trading partners in our interdependent world. These type of macro economic risks continue to support the need for safe haven investments like gold and precious metals.

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proLiberty's picture

Infinite money enables infinite government.

jonytk's picture

1 . i dont see Spain there, maybe because they had to recapitalize already the bad banks.

2. haircut for people with more than 100000 in the bank? i dont dont see the problem, hey i'm poor.

3. italy, france, netherlands, the next in line.

no more banksters's picture

"The Greek banks have been bailed out with billions exceeding 90% of country's GDP since 2008. When citizens suffer from heavy taxes, unemployment strikes the Greek society, Greek economy faces deep recession and Greeks sink in poverty, it appears that Greek governments do have money, but only for the banks. Billions were given in bailouts, but no one knows where the money went and how they were exploited. The only thing that is certain is that they didn't go where they should go: to the real economy."

Sufiy's picture

Professor Laurence Kotlikoff: The Inform Act - The True Size Of The American Debt

  Professor Laurence Kotlikoff discusses The Inform Act and the true size of the American Debt. "The country is in the worst shape than Detroit, it is basically bankrupt." China knows it and buys record amount of Gold this year.

dudeman's picture

I think it's higher than what these numbers say.

NoWayJose's picture

The most important thing to realize is that anyone with savings, or investments, or holding any government issued debt - is going to get their *ss handed to them.  The author points out a very important point that you don't see discussed enough -- that the government will rig the markets to prevent people from taking evasive action.  (Hint - Cyprus depositors).  When the crunch hits, it will happen overnight, the government will freeze things, and you will wake up poorer in the morning.  Of course, those in the know will mysteriously get out the day before...

Winston of Oceania's picture

If you can you should all get out now, cash in the 401k and pay the penalty because it will certainlly be less than the haircut AND the bail in.

TheReplacement's picture

Take a loan on it.  Get a fixed low rate and you pay back as you work.  If you lose your job you get back whatever principle remains.  Hyperinflation means faster payback.  If things never go belly up you are only out the interest.

smacker's picture

Don't miss yet another mention in that article of "a savings tax". 10%?, 20%?

It's coming, I feel sure about that.

ebworthen's picture

The debt jubilee should have started in 2008 with the FED sending every citizen $3 Million tax free.

But again; who would cook their lobster bisque, pour their drinks, and scrub their toilets?

Cannon Fodder's picture

Sorry, I don't know my economic history... but with debts being at 200 year highs, have there ever been examples in the past were nations paid off their national debt?

Winston Churchill's picture

Never, except the UK war debt from WWII, that took until the 1970's t

pay back the US.


Ghordius's picture

Winston Churchill, you can brag a bit more about that. You can state that England, and later the United Kingdom never defaulted on debt (except that little thing in the middle ages where the Medicis got ripped off). That's 800 years of honoring debt

the biggest debt repayment ever was done by the UK during the 19th century (for the Napoleonic Wars), and it took roughly 75 years of very limited gov spending. Debt started at roughly 200% of GDP (I know, difficult calculation) and payable in gold

and that's my point: govs don't have to pay back in full, just be able to roll it further (aka kicking the can down the road)

SAT 800's picture

Every example is specific. In this case the distinguishing feature is that the 19th. Century was a time of exploding British National GDP; however you wanted to measure GDP in 1812, at the time of Waterloo, it certainly didn't resemble what it was in 1880. This made the process of paying on Gilts and other instruments painless. This isn't 1880, and "Great" Britain isn't going to be paying anybody this time around.

Ghordius's picture

agree, 75 years of global dominance, coupled with prudent finances, works wonders. I wonder if the next global hegemon will remember this lesson

PTR's picture

2-4-6-8...when we gonna repudiate?

Hulk's picture

1-3-5-9, whenz the dollar going to be buried in pine ???