Credit Crises Redux
I may be wrong on this one. I hope I am wrong on this one. But I think I will be right.
The way that most countries have dealt with the credit crises and the global economic slowdown is by spending more. Spending more than they "earn": far far more than they "earn."
This is of course the way that a lot of individuals, and to some extent, a lot of companies got into trouble. When it comes down to it, you cant find buyers for your debt at prices which allow you to keep things running along smoothly.
Essentially, I think that the wave of debt offerings triggered by the massive overspending of the US and other nations will be facing skeptical buyers. A failed Latvian offering today is one of the first signs that things are not going well. It will start with smaller, less secure nations, but it will go all the way to the top.
The end result will be inflation. Quite possibly hyperinflation. This is a scary prospect, as it would easily turn what has been a tough but not exactly terrible recession into.. well.. a terrible one. It a problem with government spending to prop up the economy: eventually someone has to pay the bill. Even the US Govt. - historically able to borrow at will at the best rates in the world - is likely not going to enjoy its amazing financing for much longer. T-bills will likely stay strong for a while, as people getting out of emerging markets bonds and corporate bonds move to T-bills. But if the third wave, the national debt wave, of the credit crises hits (the first two being sub-prime and corporate liquidity respectively), we are all in for a long and ugly recession.
The way that most countries have dealt with the credit crises and the global economic slowdown is by spending more. Spending more than they "earn": far far more than they "earn."
This is of course the way that a lot of individuals, and to some extent, a lot of companies got into trouble. When it comes down to it, you cant find buyers for your debt at prices which allow you to keep things running along smoothly.
Essentially, I think that the wave of debt offerings triggered by the massive overspending of the US and other nations will be facing skeptical buyers. A failed Latvian offering today is one of the first signs that things are not going well. It will start with smaller, less secure nations, but it will go all the way to the top.
The end result will be inflation. Quite possibly hyperinflation. This is a scary prospect, as it would easily turn what has been a tough but not exactly terrible recession into.. well.. a terrible one. It a problem with government spending to prop up the economy: eventually someone has to pay the bill. Even the US Govt. - historically able to borrow at will at the best rates in the world - is likely not going to enjoy its amazing financing for much longer. T-bills will likely stay strong for a while, as people getting out of emerging markets bonds and corporate bonds move to T-bills. But if the third wave, the national debt wave, of the credit crises hits (the first two being sub-prime and corporate liquidity respectively), we are all in for a long and ugly recession.
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