Sovereign debt is a ballooning problem. As each countries’ debt grows it becomes clearer that theses debts will never be paid off. We’ve been discussing the core problems facing the US Dollar. Now, let’s look at the early dominoes to fall. Greece was the first to experience this Sovereign Debt Crisis. (Interesting that this all started in Greece, don’t you think?)
We (along with the help of Northern Europe) bailed Greece out with a “shock and awe” $1Trillion package. Please shoot me an email if you understand how we are fixing Greece’s problem of having too much sovereign debt by giving them even more debt! Even if that did fix the problem, it is not nearly enough. Spain and Italy are much bigger than Greece and will also implode. Ireland and Portugal will as well. This crisis is far too big for anyone to be able to bail them out. The money doesn’t exist. Still, we will probably continue to try to bail them out (as if we had the financial stability to do so.)
It would not be surprising to see the UK have similar issues soon. Lenders will look at their sovereign debt and deficits and demand much higher interest rates to lend… bringing a new crisis. The US, realizing that everything is cratering around them, will probably try to bail them out. This will once again put the problems of one group onto the US Dollar’s & US Taxpayers’ shoulders. (That’s now US Banks, US Automakers, US real estate owners, European governments, European banks, and now the British). Japan is also precariously close to having to pay the piper for the massive debt they’ve accumulated. They will probably have debt repayment problems too, but it will probably hurt them to a lesser degree as they realign with the East.
It would not surprise us if we face the crisis at home before these others dominoes fall, but it appears that the way things are going dominoes will fall until the US is the last one left. And then the bond holders will notice that we have the exact same sovereign debt problems that these other failed countries have and begin to demand much higher interest rates to finance our debt.
But it will be a much bigger problem for us than it is for Europe. As markets crash and with all of this borrowing by major governments, less and less capital is available to lend. (Already our two biggest lenders China & Japan have stopped lending…who is left?) The US already has and plans massive deficits moving forward and those assume tiny interest rates. As rates rise, the deficits become unbelievably large. The US Dollar will become weaker. As the US Dollar becomes weaker, people around the world will wonder why they hoard TRILLIONS of them as if they were actually real wealth. As these are sold off, the US Dollar weakens more. This is a death spiral of ever increasing interest rates and ever falling currency.
When no one is sure what a Dollar is worth, business becomes very difficult and commerce shuts down. The price of basic things will be too much for the vast majority of people. People will be desperate and hungry: riots, thieves, food shortages. Basically the stuff you’ve always seen going on in third world countries that you thought we were much too civilized to let happen here. Wars and rumors of wars. As we’ve already begun to see, it will not only be economic events, but many things in the natural world will be shaken so that Man will question what he has come to trust in.
But let’s back up a minute. If we’ve begun down this road of US Dollar devaluation, must we stay on the road?
Next, we’ll look at the only four possible outcomes to this situation.
This is Part 8 of the series Hyperinflation and the Dollar. To continue with this series, click on Pt 9. To use this as a growth tool to better understand your own calling, please read Pt 1, Pt 2, Pt 3, Pt 4, Pt 5, Pt 6 and Pt 7.
Photo credit: jrorci