Sovereign Default predictions

Martin Weiss on why there will be a sovereign default someday:

Diversification across asset classes didn’t help in the 2008 crash. Stocks fell. Most bonds fell. Real estate fell. Commodities fell. And most currencies fell, with only risk-aversion trades working. all those obligations were simply transferred from PRIVATE balance sheets to PUBLIC ones. So now, instead of private institutions like Citigroup or Bank of America at risk of failure, entire SOVEREIGN COUNTRIES are tumbling towards bankruptcy! And this time, there’s no institution or government on the planet big enough to bail them out!

Now here’s the kicker: I believe Phase I was just a dress rehearsal — a prelude to an even deeper financial crisis! I say that because the private market credit crisis wasn’t allowed to play out fully. Governments the world over stepped in, backstopping, guaranteeing, propping up, and otherwise bailing out private institutions that should have collapsed.

The Pattern

  1. Government spends everything it has
  2. Government borrows all it can from its people
  3. Government borrows still more from foreign countries & banks
  4. Government debt so high panicky political leaders turn on their own people. They confiscate wealth

Matt Mushalik: Links Between Peak Oil and Financial Crisis; also Updated Graphs

Feb 1, 2009. A comment by WNC Observer on this post.

My guess is that a US sovereign default is probably not in the cards anytime before 2015, and may not be avoidable anytime much past 2025 or so because:

1. I’ve long felt that 2012/13 was going to be a time period when something pretty serious happens. It is pretty obvious from the present megaproject data that by then, new capacity coming on line starts to fall significantly behind what is needed to replace depletion. Given present oil prices and economic conditions, it is also very likely that we are not going to be seeing a lot more megaprojects entering the pipeline in time to make much of a difference in this. SO, by around 2012, there should be a pretty substantial supply shortage, even if demand continues to be constrained.
2. Based on some of the Export Land Model (ELM) analyses it looks to me that 20 years out (2029) for zero US imports is  probably about the best case  (although the US might still be getting a trickle from Canada then). I’m more inclined to think that China and Japan will use their massive accumulation of US $ and treasuries to lock in long-term supply contracts, thus shutting the US out earlier rather than later.  As for the US using its military to acquire by force what it cannot acquire through legitimate commerce, that is likely to destroy as much or more supply than it will secure.


Having to make huge cuts or even eliminating altogether Social Security and Medicare obligations?


Having to eliminate almost all other federal government programs?


Having to raise federal income taxes or implement at VAT, raising the AVERAGE tax burden to 50% or more?

We are probably less than 4-8 years away – and maybe sooner – from having no choice but to face up to one of these fundamental, painful tradeoff decisions. Maybe we’ll have to accept all of the above in order to keep making payments on our national debt. Are we willing to do that? At what point does sovereign default start to look not quite so painful or unthinkable after all?

Of course, once The Powers That Be finally realize that we’ve only got a few more years of imports coming in any case, and once they’ve finally come clean with the general public about this, then a lot of the downsides of sovereign default start looking a lot less painful.

What you can do to protect yourself

There’s a lot on the web written about this — how to get foreign bank accounts, stash 1/10th gold coins here and abroad, Swiss annuities, foreign real estate, a foreign LLC for investments and/or business, establish your own international trust, or be the beneficiary of an international trust someone else established, and so on.

But this is the biggest crash in the history of mankind.  It’s silly to think you can use business-as-usual financial trickery.  How are you going to get to that foreign home once oil shortages strike and its rationed to agriculture and the military? It may appear to be a financial crash, but it’s actually a Malthusian die-off of 5 to 6.5 billion people, the worst calamity that has ever happened to homo sapiens.  The only way to survive an ecological crash is to have the necessary skills, friends, community, and above all, to live in the best areas of the country, and hope that climate change doesn’t drive us extinct.

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