If 90% of the countries are issuing debt and the 10% aren’t willing to buy the debt, what happens?
By Daniel at 9 February, 2010, 2:15 pm
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It seems like 90% of the countries in the world are printing money and issuing debt in a desperate attempt to solve a crisis caused by too much debt. The problem is that if 90% of the countries are issuing debt and the 10% aren’t willing to buy the debt, what happens? The danger is that most of this debt is being issued on a short-term basis, so rollover risk is huge. Soaring interest rates would destroy the world economic system. This problem is a bug in search of a windshield with an 18 wheeler barreling toward the bug.
Is Greek Crisis a Precursor to a “Global Margin Call”?
Two readers, Don B and Marshall Auerback, pointed to a Ambrose Evans-Pritchard story at the Telegraph which argues the the sovereign debt perturbations have the potential to have ramifications as serious as the subprime/Alt-A crisis. Now Evans-Pritchard has a tendency to the apocalyptic, but he also made some astute calls in 2007 and 2008 (as in not buying the commodities bubble and related resurgence of inflation theme, and seeing deflation as the real underlying risk).
And here he connects some important dots. It isn’t just that bond yields on Greece have spiked up; the other countries seen as being big external debt risks are facing bond rollovers soon:
The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.
Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe’s bubble and foreign debts top €2 trillion.
http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/greek-tragedy
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