NOOB
9th July 2011, 01:59 PM
Sovereign Debt Crisis Won't End Until Global Financial Collapse
Michael T. Snyder
July 7, 2011
www.seekingalpha.com (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5iB0FQxIsj5KoUQL4_n_UnAQUxiZB0jQ2rb 6Pl6kCe3HDDDphRd2DkyVLvJ_gUnOppmpUUd7HCy5yLUN0mKhm ohBxW3ukinEVdmkw86FSDOQ==)
In the past, there certainly have been governments that have gotten into trouble with debt, but what we are experiencing now is the first truly global sovereign debt crisis. There has never been a time in recorded history when virtually all of the governments of the world were drowning in debt all at the same time. This sovereign debt crisis is never going to end until there is a major global financial collapse. There simply is no way to unwind the colossal web of debt that we have constructed in an orderly fashion.
Right now, the EU and the IMF have been making "emergency loans" to nations such as Greece, Ireland and Portugal, but that is only going to buy those countries a few additional months. Giving more loans to nations that are already drowning in red ink may "kick the can down the road" for a little while, but it isn't going to solve anything. Meanwhile, dozens more nations all over the globe are rapidly approaching a day of reckoning.
All of the bailouts that you are hearing about right now are simply delaying the pain. The reality is that when the "emergency loans" for Greece stop, Greece is going to default. Greece is toast; the game is over. You can stick a fork in Greece because it is done.
One of the big problems for Greece is that since it is part of the euro, it can't independently print more money. If Greece cannot raise enough euros internally, it must turn to outside assistance. Unfortunately, at this point Greece has accumulated such a mammoth debt that it cannot possibly sustain it. By the end of the year, it is projected that the national debt of Greece will soar to approximately 166% of GDP (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5My1L6nGtw73CKThS89wHpdQTjJp05BaeiT 1ihTUXl6oSk7Qg7Kb1DIm2PQrl6JQkyTyqUMhi_LgRE4vUhgGc qSPZfGgCVUmBPua2hGbQsZ-E1IQGITaNS9rvkjCbGYpR_sarOfa1CjwC41_LOVVsvVFIsuKdX SGYviIJ7klMI2zCclT7edJ9GVGe3fB-m-eK_qxLpw32TL-DPYVm2oNfRY7xgrd--ruhBDbmGw5HoXJkq64jGevmsntqFuW1TUdHhr7AVw1l-wVwYaQNtHtlD).
The financial collapse of Greece (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE6Q2PnPGntr05qnJ5QQU0ADquudT82Jfae7a K4imbMAa-tmpTWj6wrYXGigj-MMCJgM5LXHqZSRvqLuYUDGJxfiOjzepHx02CrvExHVPBDDS94V Cm6RWx_MDvkt0hv5dxRCjJ5qzGTTWdVYE8s65LTfysUR_X8U00 eNkLVXOVRxwI78uHNkurclWzLzwT9hpK7byRNjHt6EMgAN3wsC TtJNBxQLW88ty6fsTzvP7K5osfI0wFkbQ4sK) is inevitable. If it keeps using the euro -- or even if it quits using it -- it will collapse. When the rest of Europe decides that it is tired of propping Greece up, the game will be over. And at this point, very few people are interested in lending Greece more money.
As I wrote yesterday, many of the nations around the world are only able to keep going because they are able to borrow huge amounts of money at low interest rates. Well, nobody wants to lend money to Greece at a low rate of interest anymore.
Today, the yield on two-year Greek bonds is back over 28 percent (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7IlYoaFy93e-k8HMYNmCS8-iFN4-VgqediTtU10_EBOwpFQ-mM1sAA93IDG-tnsGJ1yMyRRx4mweb5xjoWGowQXRzlIeyLlEmJCHxSOvSpBfVj 8fjm73_O10kDlAVLiYAcCDHTux1P6Dxki6PEMXE6dte3bKycbX kG09otNqzXjw==). Fortunately for the rest of the world, Greece is just a very, very small part of the global economy, but when interest rates start spiking like that on U.S. or Japanese debt, the entire world's financial system will be thrown into chaos.
So why is there so much of a focus on Greece right now? There is a real danger that the panic will start to spread. The other day, Moody's Investors Service slashed the credit rating on Portuguese government debt by four notches; that debt is now considered to be "junk." But even more alarming is that Moody's stated that what is going on in Greece played a role in reducing the credit rating of Portugal.
The following is a portion (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5E1kuEAklf_-Xal7gzcyAHNTtNY2S_WIAMt5BmS6_b9H_CMHtH6QOwvCTWtqT4 Xg0bLhOFGSfkKF0-EAvQUTo3vRiZaljj8hEX_8y6gjUMd5Nl8xjbTYHxdf5sI2Bcxp ftxW-RlEYZlOAx_Pjq85WHSMqxWDFQC2kEzlrE3qMrn78RP0CrMW50b LDZIbf4dvc=) of what Moody's had to say when it cut the credit rating of Portugal by four notches:
Although Portugal’s Ba2 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the EU’s evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms.
Basically, Moody's is saying that the terms of the Greek bailout make Portuguese debt less attractive because Portugal will likely be forced into a similar bailout at some point. If the EU is not going to fully guarantee the debt of the member nations, then that debt becomes less attractive to investors.
The downgrade of Portugal is having all kinds of consequences. The cost of insuring Portuguese government debt set a new record high on Wednesday, and yields on Portuguese bonds have gone haywire. If you want to get an idea of just how badly Portuguese bonds have been crashing, just check out this chart (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE4wupo0zwwrVEKLhppJRXz2zJs2la_jp6nAV T7HS2MYINkEbEcpBx-Gt97f6krHc5ie6yev7KqH4YQMHbxQhfeym39UqtFEyeUS3V3qC keYeEBrlludxn_pvBocDbX3ZD1C6LQz-FdkH5YEgmdrKmn2qeMkzBAfHEXjzS4ZnwdeYA==).
But it is not just Portugal that is having problems. Just recently, Moody's warned that it may downgrade Italy's Aa2 debt rating at some point within the next few months (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE6cioGsi1tS6hgkhEfITvL3FsUJoAjSKWP--qETl_oXF6jeHpcN4NFpoeuqatHVKmpkL4VKIF-R78y-u0A9nfRe8twuX_gnr_7B7FTiwuwc1UW0IXp1jE3AWiC-kHfcS8hfFRax61JwIPtUOCphEdDooArVnuJIR-T3IQRsFCdqbmrg9gXXOPUUVetOUwe3mGq6Q-v4tHExSbfDYxEgncbcAtZhRgmR66T0GWxX8jxCt8go1qI64MdK L_PbQa9lAfQ7Gacw1plkHk6VOrmC2JbgdeY7bgTi7NnfvwnMaD _UT2vIk-whYCwr3_b4xaWvB-J-OvdJpd4MkkRDyO3JTRoag1ea9eB912oURnmPvjImJtXnZryYLu f26zicD2l0w62iUZ0kyzUBalc46Mv6adYblbqxTKQTycbbUOyR QzNdoOIvNaO-zmEg7yfaejgwWTpF2X9-ET11SiNEzYl4PHZ0). Spain is also on the verge of major problems and Ireland may need another bailout soon.
Things don't look good. Unfortunately, if the dominoes start to fall the entire EU is going to go down. Big banks all over Europe are highly exposed to sovereign debt and they are leveraged to the hilt (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5Ef3eQyKuHh_rLzaze6-nV9LxT0jRtd7058Mbe1yrKWViAqGA0L5BguGf09VzwXFLAgEFT DGQAOlCPZIRpLA1Jo96xVlka9IJJ325xfEJ6Atpqh-uck2c8-DRYkU-68Jr2neL9ldmcA5XCyETaL2dJ8kp9f47o199N4a2O2lin9unjE PkYHY9Y). It is almost as if we are looking at a replay of 2008 in many ways.
When Lehman Brothers finally collapsed, it was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1 (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5Ef3eQyKuHh_rLzaze6-nV9LxT0jRtd7058Mbe1yrKWViAqGA0L5BguGf09VzwXFLAgEFT DGQAOlCPZIRpLA1Jo96xVlka9IJJ325xfEJ6Atpqh-uck2c8-DRYkU-68Jr2neL9ldmcA5XCyETaL2dJ8kp9f47o199N4a2O2lin9unjE PkYHY9Y), and major German banks are currently holding a tremendous amount of Greek debt. Anyone with half a brain can see that this is going to end badly.
So how is the European Central Bank responding to this crisis? It's raising interest rates once again (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE58KFlnkLchgi1sx3o0-7KhvGMxbctifGiZRA1veKy5Kw1LW_YYwTMgzH88frDkUGXogEs vwkbeE9q2uKTaf1OTiXah2wzw2MqAd7JjrLF1_ATkywo1vjqAN-dxSFh1ZlTdEYtFgcj7jfGs5CeaiUifMA73HqXiNHS2Kzg8jqSP Rw==). That certainly is not going to help the PIIGS much. But Europe is not the only one facing a horrific debt crunch.
In Japan, the national debt is now up to about 226 percent of GDP (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7N1suYuhucThZqjSij9KxdT5xl-AaqJIKuuJwY-0EB8wkuaVLcZb9-ncrDxaOH5vGexiTH52J77DsFVtQ2wMA1FoSNtfqKCC-uczE9Ih2vyR-YPpiN-clk5lzLWduL2To03CaaS9sLEg==). So far the Japanese government has been able to handle a debt load this massive because the citizens of Japan have been willing to lend the government gigantic mountains of money at interest rates so low that they are hard to believe. When that paradigm changes, and it will, Japan is going to be in a massive amount of trouble. In fact, an article in Forbes (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7RR6Q3coOEIlkKaGxwzKYiPWaGdeoirFml9 3IUD-HrGczUlkmXPrpWhsOqe5T_cgHDz8w6STVMQwXy4uGp65rG6Zkp bxDi4NuVLaS0dFK3QXo4sKyoe9Lwi7OpQpx-O8tRftYQ0qPgVlaJYbnQv895PdTfp5ncSVOvtp-DoDL8BaOGglCxyH-NZ9hVUOoNlK4O7JtoE6m1BQ==) has warned that even a very modest increase in interest rates would cause interest payments on Japanese government debt to exceed total government revenue by the year 2019.
Of course, the biggest pile of debt sitting out there is the national debt of the United States. The U.S. is so enslaved to debt that there is literally no way out under the current system. To say that America is in big trouble would be a massive understatement.
In fact, the whole world is headed for trouble. Right now, government debt around the globe continues to soar at an exponential pace. At some point a wall is going to be hit.
The Wall Street Journal recently quoted Professor Carmen Reinhart (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE45shoW3ltlX9QUHySJMb6d8nIK1Bubey5iu HDKtsduH-4n5dfoDvQXlDQDjHH4BB_UE-fBztkaklwbotH8GKvaV7BBfXYKfk7UwOjCdgLCD4vPql4LX7L3 N_DauXnYvS837vWWhhma8SR6--zLeRZXSoHnZf1iHprELYuCm7MRUFqlotfprPUs) as saying the following about what we are facing:
"These processes are not linear," warns Prof. Reinhart. "You can increase debt for a while and nothing happens. Then you hit the wall, and -- bang! -- what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big."
That is the nature of debt bubbles; They keep expanding and expanding until the day that they inevitably burst.
Governments around the world will issue somewhere in the neighborhood of $5 trillion more debt this year alone. Debt to GDP ratios all over the globe continue to rise at a frightening pace. Because the world is so interconnected today, the collapse of even one nation will devastate banks all over the planet. If even one domino is toppled, there is no telling where things may end.
The combination of huge amounts of debt and huge amounts of leverage is incredibly toxic, and that is what we have all over the globe today. Almost every major nation is drowning in a sea of red ink and almost all of our major financial institutions are leveraged to the hilt.
There is only one way that the sovereign debt crisis can end: Very, very badly. I hope you are ready for what is coming.
If every country is in debt, who are they indebted to?
Michael T. Snyder
July 7, 2011
www.seekingalpha.com (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5iB0FQxIsj5KoUQL4_n_UnAQUxiZB0jQ2rb 6Pl6kCe3HDDDphRd2DkyVLvJ_gUnOppmpUUd7HCy5yLUN0mKhm ohBxW3ukinEVdmkw86FSDOQ==)
In the past, there certainly have been governments that have gotten into trouble with debt, but what we are experiencing now is the first truly global sovereign debt crisis. There has never been a time in recorded history when virtually all of the governments of the world were drowning in debt all at the same time. This sovereign debt crisis is never going to end until there is a major global financial collapse. There simply is no way to unwind the colossal web of debt that we have constructed in an orderly fashion.
Right now, the EU and the IMF have been making "emergency loans" to nations such as Greece, Ireland and Portugal, but that is only going to buy those countries a few additional months. Giving more loans to nations that are already drowning in red ink may "kick the can down the road" for a little while, but it isn't going to solve anything. Meanwhile, dozens more nations all over the globe are rapidly approaching a day of reckoning.
All of the bailouts that you are hearing about right now are simply delaying the pain. The reality is that when the "emergency loans" for Greece stop, Greece is going to default. Greece is toast; the game is over. You can stick a fork in Greece because it is done.
One of the big problems for Greece is that since it is part of the euro, it can't independently print more money. If Greece cannot raise enough euros internally, it must turn to outside assistance. Unfortunately, at this point Greece has accumulated such a mammoth debt that it cannot possibly sustain it. By the end of the year, it is projected that the national debt of Greece will soar to approximately 166% of GDP (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5My1L6nGtw73CKThS89wHpdQTjJp05BaeiT 1ihTUXl6oSk7Qg7Kb1DIm2PQrl6JQkyTyqUMhi_LgRE4vUhgGc qSPZfGgCVUmBPua2hGbQsZ-E1IQGITaNS9rvkjCbGYpR_sarOfa1CjwC41_LOVVsvVFIsuKdX SGYviIJ7klMI2zCclT7edJ9GVGe3fB-m-eK_qxLpw32TL-DPYVm2oNfRY7xgrd--ruhBDbmGw5HoXJkq64jGevmsntqFuW1TUdHhr7AVw1l-wVwYaQNtHtlD).
The financial collapse of Greece (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE6Q2PnPGntr05qnJ5QQU0ADquudT82Jfae7a K4imbMAa-tmpTWj6wrYXGigj-MMCJgM5LXHqZSRvqLuYUDGJxfiOjzepHx02CrvExHVPBDDS94V Cm6RWx_MDvkt0hv5dxRCjJ5qzGTTWdVYE8s65LTfysUR_X8U00 eNkLVXOVRxwI78uHNkurclWzLzwT9hpK7byRNjHt6EMgAN3wsC TtJNBxQLW88ty6fsTzvP7K5osfI0wFkbQ4sK) is inevitable. If it keeps using the euro -- or even if it quits using it -- it will collapse. When the rest of Europe decides that it is tired of propping Greece up, the game will be over. And at this point, very few people are interested in lending Greece more money.
As I wrote yesterday, many of the nations around the world are only able to keep going because they are able to borrow huge amounts of money at low interest rates. Well, nobody wants to lend money to Greece at a low rate of interest anymore.
Today, the yield on two-year Greek bonds is back over 28 percent (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7IlYoaFy93e-k8HMYNmCS8-iFN4-VgqediTtU10_EBOwpFQ-mM1sAA93IDG-tnsGJ1yMyRRx4mweb5xjoWGowQXRzlIeyLlEmJCHxSOvSpBfVj 8fjm73_O10kDlAVLiYAcCDHTux1P6Dxki6PEMXE6dte3bKycbX kG09otNqzXjw==). Fortunately for the rest of the world, Greece is just a very, very small part of the global economy, but when interest rates start spiking like that on U.S. or Japanese debt, the entire world's financial system will be thrown into chaos.
So why is there so much of a focus on Greece right now? There is a real danger that the panic will start to spread. The other day, Moody's Investors Service slashed the credit rating on Portuguese government debt by four notches; that debt is now considered to be "junk." But even more alarming is that Moody's stated that what is going on in Greece played a role in reducing the credit rating of Portugal.
The following is a portion (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5E1kuEAklf_-Xal7gzcyAHNTtNY2S_WIAMt5BmS6_b9H_CMHtH6QOwvCTWtqT4 Xg0bLhOFGSfkKF0-EAvQUTo3vRiZaljj8hEX_8y6gjUMd5Nl8xjbTYHxdf5sI2Bcxp ftxW-RlEYZlOAx_Pjq85WHSMqxWDFQC2kEzlrE3qMrn78RP0CrMW50b LDZIbf4dvc=) of what Moody's had to say when it cut the credit rating of Portugal by four notches:
Although Portugal’s Ba2 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the EU’s evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms.
Basically, Moody's is saying that the terms of the Greek bailout make Portuguese debt less attractive because Portugal will likely be forced into a similar bailout at some point. If the EU is not going to fully guarantee the debt of the member nations, then that debt becomes less attractive to investors.
The downgrade of Portugal is having all kinds of consequences. The cost of insuring Portuguese government debt set a new record high on Wednesday, and yields on Portuguese bonds have gone haywire. If you want to get an idea of just how badly Portuguese bonds have been crashing, just check out this chart (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE4wupo0zwwrVEKLhppJRXz2zJs2la_jp6nAV T7HS2MYINkEbEcpBx-Gt97f6krHc5ie6yev7KqH4YQMHbxQhfeym39UqtFEyeUS3V3qC keYeEBrlludxn_pvBocDbX3ZD1C6LQz-FdkH5YEgmdrKmn2qeMkzBAfHEXjzS4ZnwdeYA==).
But it is not just Portugal that is having problems. Just recently, Moody's warned that it may downgrade Italy's Aa2 debt rating at some point within the next few months (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE6cioGsi1tS6hgkhEfITvL3FsUJoAjSKWP--qETl_oXF6jeHpcN4NFpoeuqatHVKmpkL4VKIF-R78y-u0A9nfRe8twuX_gnr_7B7FTiwuwc1UW0IXp1jE3AWiC-kHfcS8hfFRax61JwIPtUOCphEdDooArVnuJIR-T3IQRsFCdqbmrg9gXXOPUUVetOUwe3mGq6Q-v4tHExSbfDYxEgncbcAtZhRgmR66T0GWxX8jxCt8go1qI64MdK L_PbQa9lAfQ7Gacw1plkHk6VOrmC2JbgdeY7bgTi7NnfvwnMaD _UT2vIk-whYCwr3_b4xaWvB-J-OvdJpd4MkkRDyO3JTRoag1ea9eB912oURnmPvjImJtXnZryYLu f26zicD2l0w62iUZ0kyzUBalc46Mv6adYblbqxTKQTycbbUOyR QzNdoOIvNaO-zmEg7yfaejgwWTpF2X9-ET11SiNEzYl4PHZ0). Spain is also on the verge of major problems and Ireland may need another bailout soon.
Things don't look good. Unfortunately, if the dominoes start to fall the entire EU is going to go down. Big banks all over Europe are highly exposed to sovereign debt and they are leveraged to the hilt (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5Ef3eQyKuHh_rLzaze6-nV9LxT0jRtd7058Mbe1yrKWViAqGA0L5BguGf09VzwXFLAgEFT DGQAOlCPZIRpLA1Jo96xVlka9IJJ325xfEJ6Atpqh-uck2c8-DRYkU-68Jr2neL9ldmcA5XCyETaL2dJ8kp9f47o199N4a2O2lin9unjE PkYHY9Y). It is almost as if we are looking at a replay of 2008 in many ways.
When Lehman Brothers finally collapsed, it was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1 (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE5Ef3eQyKuHh_rLzaze6-nV9LxT0jRtd7058Mbe1yrKWViAqGA0L5BguGf09VzwXFLAgEFT DGQAOlCPZIRpLA1Jo96xVlka9IJJ325xfEJ6Atpqh-uck2c8-DRYkU-68Jr2neL9ldmcA5XCyETaL2dJ8kp9f47o199N4a2O2lin9unjE PkYHY9Y), and major German banks are currently holding a tremendous amount of Greek debt. Anyone with half a brain can see that this is going to end badly.
So how is the European Central Bank responding to this crisis? It's raising interest rates once again (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE58KFlnkLchgi1sx3o0-7KhvGMxbctifGiZRA1veKy5Kw1LW_YYwTMgzH88frDkUGXogEs vwkbeE9q2uKTaf1OTiXah2wzw2MqAd7JjrLF1_ATkywo1vjqAN-dxSFh1ZlTdEYtFgcj7jfGs5CeaiUifMA73HqXiNHS2Kzg8jqSP Rw==). That certainly is not going to help the PIIGS much. But Europe is not the only one facing a horrific debt crunch.
In Japan, the national debt is now up to about 226 percent of GDP (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7N1suYuhucThZqjSij9KxdT5xl-AaqJIKuuJwY-0EB8wkuaVLcZb9-ncrDxaOH5vGexiTH52J77DsFVtQ2wMA1FoSNtfqKCC-uczE9Ih2vyR-YPpiN-clk5lzLWduL2To03CaaS9sLEg==). So far the Japanese government has been able to handle a debt load this massive because the citizens of Japan have been willing to lend the government gigantic mountains of money at interest rates so low that they are hard to believe. When that paradigm changes, and it will, Japan is going to be in a massive amount of trouble. In fact, an article in Forbes (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE7RR6Q3coOEIlkKaGxwzKYiPWaGdeoirFml9 3IUD-HrGczUlkmXPrpWhsOqe5T_cgHDz8w6STVMQwXy4uGp65rG6Zkp bxDi4NuVLaS0dFK3QXo4sKyoe9Lwi7OpQpx-O8tRftYQ0qPgVlaJYbnQv895PdTfp5ncSVOvtp-DoDL8BaOGglCxyH-NZ9hVUOoNlK4O7JtoE6m1BQ==) has warned that even a very modest increase in interest rates would cause interest payments on Japanese government debt to exceed total government revenue by the year 2019.
Of course, the biggest pile of debt sitting out there is the national debt of the United States. The U.S. is so enslaved to debt that there is literally no way out under the current system. To say that America is in big trouble would be a massive understatement.
In fact, the whole world is headed for trouble. Right now, government debt around the globe continues to soar at an exponential pace. At some point a wall is going to be hit.
The Wall Street Journal recently quoted Professor Carmen Reinhart (http://r20.rs6.net/tn.jsp?llr=dpgzn7n6&et=1106483924065&s=5723&e=001o16HY2UeTE45shoW3ltlX9QUHySJMb6d8nIK1Bubey5iu HDKtsduH-4n5dfoDvQXlDQDjHH4BB_UE-fBztkaklwbotH8GKvaV7BBfXYKfk7UwOjCdgLCD4vPql4LX7L3 N_DauXnYvS837vWWhhma8SR6--zLeRZXSoHnZf1iHprELYuCm7MRUFqlotfprPUs) as saying the following about what we are facing:
"These processes are not linear," warns Prof. Reinhart. "You can increase debt for a while and nothing happens. Then you hit the wall, and -- bang! -- what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big."
That is the nature of debt bubbles; They keep expanding and expanding until the day that they inevitably burst.
Governments around the world will issue somewhere in the neighborhood of $5 trillion more debt this year alone. Debt to GDP ratios all over the globe continue to rise at a frightening pace. Because the world is so interconnected today, the collapse of even one nation will devastate banks all over the planet. If even one domino is toppled, there is no telling where things may end.
The combination of huge amounts of debt and huge amounts of leverage is incredibly toxic, and that is what we have all over the globe today. Almost every major nation is drowning in a sea of red ink and almost all of our major financial institutions are leveraged to the hilt.
There is only one way that the sovereign debt crisis can end: Very, very badly. I hope you are ready for what is coming.
If every country is in debt, who are they indebted to?