Global Debt Time Bomb explodes soon

[Kommander]

A one world currency would require a one world government, otherwise you would end up with the current Euro situation all over the world. No thank you.

[SeerSavant]

A one world currency would require a one world government, otherwise you would end up with the current Euro situation all over the world. No thank you.

Yep... what he said.... but with a hearty HELL NO, attached in there somewheres...

If it gets that bad, the consolidating debt and currency sounds to me like the nation equivilent of the corporate bailouts, when letting the corp declare bankruptcy is in effect going to accomplish the same thing, or more likely to fail financially and be bought out by a stronger corporation, or replaced by a new, more efficient one...

I might get some flack for this, but long term, wouldn't it be healthier for a nation state to fail and rebuild from it's mistakes instead of trying to hold on indefinitely?

[phil_in_cs]

I might get some flack for this, but long term, wouldn't it be healthier for a nation state to fail and rebuild from it's mistakes instead of trying to hold on indefinitely?

Go read up on Iceland in the past few years.

[SeerSavant]

Okay, read up a little on Iceland... Wiki apparently hasn't been updated in the last few years, so i pulled some info from the Spectator, english translations of Icelandic newspapers and the BBC....

Basically they let the banks fail... Wrote off their debts as it were, and consolidated a great deal thru the IMF (which at least worked better for them than it did for Argentina) but their debt was around 50 billion euro, and they also applied to join the EU...

The thing I see wrong is that they have a relatively small economy, they import almost everything that is sold incountry, which means that after the banks failed, inflation began to work in the economic favor, but not to the internal debts... Unemployment is falling and the their economy is rising faster than the EU...
Which really isn't saying much nowadays.

From what I've read, nearly 25 to 40 percent of the home debt cannot be paid, even though inflation is rising and employment is kicking up (they still have their own currency too, but it devalued severely and that has actually helped the economy by bringing in foreign investors and travel (the rate of exchange makes it cheap to go there, but that same influx of money means it's still pretty expensive to live there and earn local wages) So with about a quarter of the population or more ready to default on their home loans, I'd say they are still not out of the woods by a long shot... Even if the economy seems to be coming back...

Moody’s Investors Service, the rating agency, said in February 2012 that it expected Iceland’s economy to grow 2.5 percent this year and next and government debt to fall below 100 percent of gross domestic product in 2013.

http://topics.nytimes.com/top/news/international/countriesandterritories/iceland/index.html
So they still owe as much if not more than what they make?

Also, they kept their Krona instead of the Euro, which allows them to benefit from an exchange rate, or allow foreign investors to benefit. But all the goods are getting more expensive, and the debt that so many had thru home loans and whatnot has soared out of reach...
But having a separate currency from their neighbors, which tanked just as hard as the banks, seems to have helped;

But Iceland had a key weapon in its armoury that is not open to the indebted eurozone nations - Iceland had its own currency, the krona. And, when the banks collapsed, the krona did too.
That is a key reason why Reykjavik is now so busy. Prices have effectively halved for most tourists. From being one of the most expensive cities on earth, Reykjavik has become, well, just a bit pricey.
But, as Gunnar, the taxi driver who drove me back from the presidential mansion explained, the collapse in the krona has cost many Icelanders dear.
Virtually everything here is imported and when the currency devalued, prices for everything from cars, to building materials, to food, soared. And at the same time wages fell.
It has been a very painful squeeze, Gunnar says, made considerably worse by the fact that during the boom years many Icelanders were encouraged to take loans in foreign currencies and now they have doubled - sometimes even tripled - in value too.
"I'll never pay my loans back," Gunnar tells me. "Better just to walk away from it - let them have my house."

http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/9550667.stm

That plus the relatively small size of the nation makes me think that any success or failure, cannot be applied to something as vast as the whole of the European Union, much less a country like Spain or Italy...
They have a population of roughly 300 thousand, and are roughly the physical size of my state of Virginia. (by comparison, the CITY of virginia beach, virginia is over 400 thousand)

When faced with the insurmountable and reckless debts, a cascading recession, and the demands of the international political elite for more debt and austerity, the government of Iceland put it to their citizens. In early 2009, with a vote of 90 percent, Icelanders chose to default, leaving foreign investors, bankers and governments, holding much of the losses. The event stands as a stark reminder to the dangers of lending to overly indebted borrowers.

As a result of the default, the Icelandic Krona fell sharply, at one point dropping more than 70 per cent against the euro. A recession of some 5 percent followed. However, as a result of its debt repudiation, the Icelandic economy did not die. In fact, in the ensuing two years, the Icelandic economy has shown signs of improvement. Indeed, Bloomberg has reported that, “Iceland is doing better than anyone could have hoped.”

Doubtless, Iceland did not adopt a costless solution. Their economy now is still a shadow of what it was back in the boom days of 2005 and 2006. However, their default may prove to be far less burdensome socially and politically than the increased debt and austerity that had been encouraged by central banking elites.

http://capitalismmagazine.com/2011/10/greeks-may-look-north-to-icelands-debt-default/




I think a country as relatively small as iceland (even though they had a huge debt, and no doubt left a great many holding the bag) was small enough that they're 'bankruptcy' could be absorbed by their neighbors...

But a country 10 or 15 times larger, would have to realize that similar behavior would have a cascading effect...
Greece might get away with it, simply because those who have been buying their debt have to understand that they might realistically never see a return. In my opinion, however governments have been known to do less than intelligent things with their peoples money...


So If i understand this correctly, it might in fact be healthier for the nation that fails and rebuilds, but depending on it's size and the size of it's debt, those owners of the nations debt might not take too kindly to that sort of action...

Shit... back to square one... We are all in the same basic boat, and frankly, we are all gonna get screwed by this shared debt, sooner or later... All everyone is doing anymore is trying to squeeze a few more years out of a shrinking pool of wealth generation... And the faster we try and borrow our way out, the quicker the decline into a right proper collapse, and with a nation as big as spain, the EU has to try and bail them out, because if not, then we are talking a series of failures that will bring down the EU in a short time...

I don't see a viable solution that doesn't involve going even deeper in the hole...

Maybe I'm not versed enough in economics or european economics to understand it...

But am I close, or am I missing something?

[phil_in_cs]

You're pretty close. They told foreign debt holders to go fuck themselves, bit into short term pain rather than saddle their children with long term debt, and not insignificantly, jailed many of the bankers and financial folks who got them into the mess.

[SeerSavant]

I got that part, but what would happen if say, Spain did the same thing?

Big difference between 50 billion Euro versus what, 1.6 trillion? Not only that, but Spain's private debt is staggering.... Public debt is 66percent of the GDP but;

http://blogs.wsj.com/marketbeat/2012/03/23/spains-critical-issue-is-its-private-debt/

In the Spanish case, private non-financial debt dwarfs public sector debt by nearly four times, representing over 220% of GDP. And unlike Italy, Spain’s debt cannot be financed with a high level of domestic savings. It must be borrowed abroad.

No matter how the state debt is handled, the private debt is gotten way out of control... In many ways, like the people still in trouble in Iceland... That debt won't go away, and with such a huge amount, along with the public/state debt, I doubt if there is simply enough money to bail them out, if at all?


I'm still wrapping my head around it...

The sad part is, some of the tin foil hat stuff out there is starting to seem less alarmist, and more prophetic... If Spain crumbles, who will fall next?

[Kommander]

Speaking of Iceland wasn't there a point where the ISK (in game currency) from the game EvE was considered a better investment than the ISK from Iceland?

[phil_in_cs]

That debt won't go away, and with such a huge amount, along with the public/state debt, I doubt if there is simply enough money to bail them out, if at all?

Actually, debt can just go away. Debt to German, French, and UK banks especially can just go away in the blink of an eye if the Spanish say they aren't going to pay it. That's what Iceland did, that's what Russia did not too long ago, and that's what other nations have done. The EU, IMF, etc hate that idea, since they are the ones that get stiff. There's no doubt it causes big financial problems, but the debt can simply go away if the debtor decides not to pay.

That's the whole idea behind bankruptcy. Sometimes your decisions have been so bad you have to bite the bullet and take a huge short term pain the ass in order to get past it. Greece piled debt onto the more debt, and it will be doubtful they can even make interest payments in a while.

In the US, secured debts from GM and Chrysler were set aside. Those are debts (bonds) that had legal contracts saying "if the bond defaults you get this property." The rules were changed and the bonds defaulted with no transfer of property. The bond holders are suing, but if they get a penny on the dollar I will be amazed.

Internal debts are a bit more difficult, but that can happen too. People will be pissed no doubt. People who planned on retiring won't be able too. People will die from lack of medical care. Schools will close. But if there really is no money to pay them, maybe the sooner everyone admits the obvious and moves on the better they might be in 10 years.

[SeerSavant]

But isn't the debt another state/nation lending you that money, not paying it back, means the billions or more that the other state is owed will seriously affect their finances as well. A large version of Iceland could, maybe not bring down the other nations, but seriously affect the economic future of the lending state...

The individual states say, they aren't gonna pay... If it works, then other states would no doubt follow suit... eventually certain states will be left with empty promises to pay debt, and probably want to seek some kind of restitution...

So saying they do that... What kind of outcome if, say Spain and Greece gave up and simply said they could not pay. Are they expelled from the EU, do they end up on the receiving end of sanctions? Does the debtor nations get on a payment plan?
Could this lead to war, or will the EU simply begin breaking apart?

Is this worst case scenario, and if so, what is a more likely outcome...
Looking for some kinda good news, I guess.

Not arguing Phil, and I really do appreciate the learning i'm getting... Maybe I'm just dense...

Is it really that simple? No, we wont pay, and life goes on, a shitload harder, but aside from the hardships on the people of the debt ridden state, doesn't this affect neighbor states, lender states, and wouldn't they be pissed enough to do something about it...
Or, stop buying other nations debt... Which might end up worse/domino effect?

Bankruptcy on a individual level makes perfect sense, you can't pay it... but if enough people, or if a high enough amount of debt, brings about non payment of debt, doesn't that crash the system itself?

[Valarius]

In the US, secured debts from GM and Chrysler were set aside. Those are debts (bonds) that had legal contracts saying "if the bond defaults you get this property." The rules were changed and the bonds defaulted with no transfer of property. The bond holders are suing, but if they get a penny on the dollar I will be amazed.

Correct me if I'm wrong but the Department of Defense still drives Humvees, among other vehicles made by General Motors and Chrysler. The President of the United States and Congress will outright nationalize those auto companies before they're allowed to go bankrupt in the middle of two wars, politics be damned. Same with Colt, same with Boeing and Lockheed-Martin, and I believe the same with any company that the DoD has any major strategic reliance on. Military-industrial complex and all that.

[Doctorr Fabulous]

In the US, secured debts from GM and Chrysler were set aside. Those are debts (bonds) that had legal contracts saying "if the bond defaults you get this property." The rules were changed and the bonds defaulted with no transfer of property. The bond holders are suing, but if they get a penny on the dollar I will be amazed.

Correct me if I'm wrong but the Department of Defense still drives Humvees, among other vehicles made by General Motors and Chrysler. The President of the United States and Congress will outright nationalize those auto companies before they're allowed to go bankrupt in the middle of two wars, politics be damned. Same with Colt, same with Boeing and Lockheed-Martin, and I believe the same with any company that the DoD has any major strategic reliance on. Military-industrial complex and all that.

GM, no, and Chrysler, never. No new Hummvees. Oshkosh, International, and Caterpillar are the big contractors now. Anyone else notice that GM took a huge hit the same time the .mil stopped getting Hummvees ordered?

Also, anyone mind explaining the "internal debt" that Phil mentioned? i found a few different definitions, but I'm having a hard time applying that to the discussion.

[Odinsown]

Hey Everyone:

Internal debt is debt owed to a person or company inside that country. External debt is debt owed to a forigen person, company, or gov't.

Odinsown

[phil_in_cs]

Hey Everyone:

Internal debt is debt owed to a person or company inside that country. External debt is debt owed to a forigen person, company, or gov't.

Odinsown

Pretty much. Internal debt is both debt a citizen bought in bonds, as well as promised future payments such as pensions and medical care.

I'm not trying to say that a default wouldn't be a huge deal - that's the point. It is massive, and on nation the size of Spain the impact would be world wide. I'm just pointing out the effects of a bailout are massive too, just not in the short run. A bailout is effectively saying "We screwed things up really bad, lets borrow even more and hope things turn around so that our children and grandchildren can pay off our screw up."

The choice is between "eat major pain now, and in ten years maybe be ok" and "eat some pain now, and some pain every year for generations, and hope for something better down the road".

The good choices are already eliminated by prior actions.

[SeerSavant]

The good choices are already eliminated by prior actions.

Kinda what I thought...


It's gonna be bad for a long time before it gets any better, I guess...

[Doctorr Fabulous]

I think I understand. I was thinking of internal debt as something vary different.

On the bailout vs bankruptcy: my dad explained it like this when I was younger, and Argentina was the hot topic. He said that a bailout is like taking out a loan to pay our credit card debts off. It only works if you will be able to pay back that loan, and soon. Otherwise ten years down the road, you owe more money than before, and you still have to file for bankruptcy.

[phil_in_cs]

I think I understand. I was thinking of internal debt as something vary different.

On the bailout vs bankruptcy: my dad explained it like this when I was younger, and Argentina was the hot topic. He said that a bailout is like taking out a loan to pay our credit card debts off. It only works if you will be able to pay back that loan, and soon. Otherwise ten years down the road, you owe more money than before, and you still have to file for bankruptcy.

That's a great analogy.

[Pilsung]

http://www.nypost.com/p/news/opinion/op ... QpSN7ttOIL

The US dollar is getting perilously close to losing its status as the world’s reserve currency. Should it cross the line, the 2008 financial crisis could look like a summer storm.

Yes, worries about insolvency in Europe dominate the headlines. Last week, Standard & Poor’s cut Spain’s bond rating to BBB+ — a clear sign that Europe’s financial crisis is far from over.

But America’s escalating debt problem is far more likely to precipitate a truly global crisis, because the dollar has for decades played such a central role in the world economy.

How bad is the US problem? Former Treasury official Lawrence Goodman recently pointed out that investors are shunning US bonds and notes; the lack of other buyers forced the Federal Reserve to buy “a stunning . . . 61 percent of the total net issuance of US government debt” last year. Like many others, he warns that ballooning debt puts the US economy at risk for a sharp correction.

But the even larger risk is the potential loss of the dollar’s “reserve currency” status — a key support of the world economy for the last four decades.

It started with the 1973 Saudi commitment to accept only US dollars as payment for oil, followed by OPEC’s 1975 agreement to trade only in dollars. Trading of other commodities came to be priced in dollars, reinforcing the dollar’s “reserve” status.

As a result, central banks worldwide have held onto large reserves of dollars to facilitate trade. That, in turn, has enabled the US to print much larger amounts of its currency, with seemingly little inflationary consequences. It’s also made it easier for Americans to import more than they export, to consume more than they produce, and to spend more than they earn.

But all that is changing rapidly....

[JustInCase]

Buckle up, point of no return, right ahead.

[smokinbunta]

This is pretty scary... As a start up business owner i REALLY hope we don't go in the drain cause it's tough enough already. And my personal take on prep is for short term local natural disasters not long term national crisis.

[MVegas]

This is pretty scary... As a start up business owner i REALLY hope we don't go in the drain cause it's tough enough already. And my personal take on prep is for short term local natural disasters not long term national crisis.

I have similar hopes. However, IMHO, we are f***ing boned.

This thing is going to get a lot worse before it gets better. If you have any space for a garden, get to work.

[solrac7]

It's scary to start to see a more "main-stream" press even talking about the dollar losing reserve currency status... Usually all they report on is who won the Bachelorette or Idol...
Cb

[raptor]

http://www.nypost.com/p/news/opinion/opedcolumnists/how_us_debt_risks_dollar_doomsday_j8dxHSYWUa22QpSN7ttOIL

Not disagreeing with the risk. Just pointing out there nothing new in this opinion piece. There have been numerous discussions about this matter. The hard truth is that right now and for the next few years (barring some earth shattering event), there is no other currency that is a suitable alternative reserve currency. The yuan sure is not. The Euro is having huge issues. The Canadian and Australian dollars are strong as is the Swiss franc but they lack both the economic depth and desire to take this role.

The BRIC nations could certainly get together and over time come up with a competitor. The key phrase there is "over time". It is also likely that the BRIC nations will increasing make central bank deals to exchange currency in lieu of using USD. In today's world of electronic wire transfers it is not that big of a deal to do this. IMO the most likely successor to the USD are these trading agreements between central banks. These to also take time to set up.

Again not saying it cannot or will not happen but the probability of this event occurring (barring some earth shattering event) in the next 3 to 5 years is low.

Over the long run there is no doubt in my mind that the USD will lose it's present status as the world reserve currency. That said there is also no doubt in my mind that at some point in time a lot of things will happen.


The other aspect is exactly what will this mean. It is hard to say. We can look to the UK as a modern model since they were the world currency until WW-2. Many of the same issues they faced we are also facing. A huge debt load for instance.

However the dissimilarities are numerous. Their peacetime economy was in ruins literally in some cases. They had a huge unemployment rate due to demobilization and shortages of basic goods.

Also much of their debt was not in pound sterling but was foreign debt...USD. Debt denominated in foreign currency is a huge problem.

We talk about and obsess with our foreign debt and it is bad but do you know who is our biggest debtor today in terms of dollars? It is the citizens of the US. The Social Security system and other federal and state government entities and citizens.

http://finance.yahoo.com/news/biggest-h ... -debt.html

[smokinbunta]

A local member of the KC chapter posted this on FB today.. scary read.. http://www.beaconequity.com/we-are-preparing-for-massive-civil-war-says-dhs-informant-2012-05-03/

It claims highly creditable source....

[raptor]

A local member of the KC chapter posted this on FB today.. scary read.. http://www.beaconequity.com/we-are-preparing-for-massive-civil-war-says-dhs-informant-2012-05-03/

It claims highly creditable source....

True news radio who quoted private investigator Doug Hagmann who said "The one source that we have I’ve known since 1979. He started out as a patrol officer and currently he is now working for a federal agency under the umbrella of the Department of Homeland Security; he’s in a position to know what policies are being initiated, what policies are being planned at this point, and he’s telling us right now.."

Translated and shortened to: "A friend of a friend told me this and he should know because he works for the government."

The phrase "tin foil hat" comes to mind for more reasons than I care to write about.