The Worst Sovereign Debt Crisis, Ever

The Worst Sovereign Debt Crisis, Ever …
by Larry Edelson
Dear Barnet,

Larry Edelson

The largest and worst sovereign debt crisis, ever, is rapidly approaching.

Greece is now at its tipping point. As I pen this issue, the government of Greece is desperately trying to stave off default on a 750 million euro repayment ($835.7 million) to the International Monetary Fund (IMF).

Whether Greece gets concessions or not, won’t matter. Because come June, Greece faces another 2.6 billion euro repayment (US $2.9 billion).

And come July and August, it will face a whopping 8.7 billion euro ($9.69 billion) repayment — 7 billion ($7.8 billion) of which is owed to the European Central Bank (ECB).

This summer, Greece needs to come up with 8.7 billion euros for the ECB.

There is simply no way Greece can pay off that debt. It doesn’t have the money. Just to make a minor 200 million euro payment last week, the Greek government had to call in all excess cash from regional banks, leaving government employees and pensioners waiting for their checks.

Nor can Greece rollover the debt without paying excessive interest rates — near 12 percent for 10-year money — bankrupting the country even further.

Meanwhile, the IMF and the ECB are ramming more and more austerity measures down the throats of the Greek people — all in the name of making sure bondholders and authorities get repaid.

I ask you, is this what the world has come to? Sacrificing the lives of ordinary people to make sure creditors get repaid?

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Already in Greece, a recent study shows that the suicide rate has soared 36 percent during the crisis. Not surprising considering the stress the Greek people are under which, in turn, has forced unemployment to 25.4 percent and youth unemployment stands at a whopping 50.1 percent.

If you think Greece is to blame, think again. Sure, like any country, Greece has its tax cheats and black market economy.

But in 2001, Greece was essentially held at gunpoint to join the euro, through forced financings at attractive low interest rates.

And now that it has having trouble repaying that debt, Greece is being held at gunpoint again.

Thing is, it’s not just Greece that is about to reach the tipping point. all of Europe is about to go under. You can see the most indebted of them — compared to their GDP — in this chart here.

While Greece is certainly the worst, Italy isn’t far behind, or is Portugal.

And of those European countries that have debt levels just above or below the 100 percent of GDP level, don’t let anyone kid you. Not one of these countries is capable of servicing its debt, not even France.

Lest you think a sovereign debt crisis is confined to Europe, think again. Europe’s sovereign debt crisis is merely the starting point.

Japan’s debt stands at more than 24 percent of GDP, nearly $12 trillion.

And worst of all is, yes, none other than the United States, where Washington is in hock — not for just its $18 trillion national debt — but for more than $215 trillion — the worst and biggest debt in the history of civilization at nearly 12 times our GDP.

Put another way, if you took every penny of what our country produces in a single year, it would take 12 years to pay off that debt.
And that’s not even counting the interest expense on the debt, which is sure to rise in the months and years ahead.Put yet another way, it would require each and every American to give up their earnings and production, essentially go bankrupt, for 12 straight years.

A sovereign debt crisis of unprecedented proportions? You bet it is. We all knew it was lurking out there, and now, it’s here. Greece is merely the starting, tipping point.

One of the most important aspects of this sovereign debt crisis as it unfolds over the next several years will be how they impact the financial markets.

Understand that, and you will survive.

Thing is, very few indeed will understand what will really happen. So let me summarize it now.

First, and most obvious, government bond markets are headed into the abyss. Don’t touch sovereign debt with a 100-foot pole. Do so and you might as well commit financial suicide.

Second, and far less obvious, gold and commodities generally: At the beginning stage of the crisis, now, commodities, including precious metals, will remain caught in deflation.

Why? It’s actually rather simple. In the beginning phase of a sovereign debt crisis, investors of all sorts seek the safe haven of hoarding cash. And since the U.S. dollar is still the world’s reserve currency, that’s bullish for the dollar, and bearish for commodities.

But later in the crisis, that thinking will invert, and …

Third, once commodities reach their lows in a panic sell off, they will take flight to the upside, in a massive new bull market, one which will ultimately see gold hit better than $5,000 an ounce.

Why? Because later in the crisis it will become apparent that it is not just the government of Europe that is going under, but also the governments of Japan and the United States.

And when that recognition comes, it will reignite a bull market in commodities and all sorts of tangible assets. In addition …

Fourth, most will expect U.S. equity markets to crash. But that’s dead wrong. The history of sovereign debt crises is that stock markets perform exceptionally well — when government, the public sector, not the private sector, is going bust.

Why? Because no one would dare lend money to government. Because the U.S. stock markets represent the safest, deepest, most liquid bastion of capitalism on the planet. And because our biggest companies, very simply put, will outlast our government.

So get ready. The worst sovereign debt crisis, ever, is right around the corner.

Best wishes, as always …

Larry

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