The Global Debt Bomb & Obama

[WhiskeyGirl]

The Global Debt Bomb

Daniel Fisher, 01.21.10, 04:20 PM EST
Forbes Magazine dated February 08, 2010

Spending our way out of worldwide recession will take years to pay back--and create a lot of pain.

...

A FORBES survey of sovereign credit, taking into account trends in spending and revenue, economic freedom and the price of the debt insurance, a.k.a. credit default swaps, ranks the U.S. number 35 in a class of 85, below Germany, the Netherlands and China. The cds market is priced to imply a 3.1% chance of default over five years on Treasury debt. Other countries are likely to hit the debt wall sooner, and with greater impact. The U.K., for example, is 38 on the list, two notches above Slovenia. One culprit is much higher levels of private banking debt that could land on the British government balance sheet á la Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ) in the U.S. The sovereign debt of the U.K., plus the assets of its five largest banks, exceeds 500% of GDP, compared with 200% in the U.S. Even closer to the edge is Ireland. Sovereign debt is at 41% of GDP. But total banking-system assets are another 800% of GDP (see graph above). If those assets sour, the government will almost certainly step in to protect the banking system, as Iceland was forced to do in 2008. Iceland's currency and stock market collapsed soon thereafter, and its president recently blocked a law to repay $5 billion-plus to British and Dutch investors. That move puts at risk a pending bailout package for Iceland from the International Monetary Fund and its application to join the European Union.

Most investors seem to believe, as the late Citibank chairman Walter Wriston put it, that "countries don't go bust." The opposite is true. "There was a massive default wave in 1980s and 1990s," says Reinhart. Investors may not have paid much attention since the defaults were mostly in emerging market countries like Guatemala and Romania. But the deadbeats included current investor favorites like Brazil, which defaulted in 1983, went through a bout of hyperinflation in 1990 and effectively defaulted again, for the same reason, in 2000. Reinhart and Rogoff show that, on average, nations add 86% to their debt loads within three years of a credit crisis. At the same time, government revenue falls an average of 2% in the second year after the onset of the troubles (see timeline, below).

More here - http://www.forbes.com/forbes/2010/0208/debt-recession-worldwide-finances-global-debt-bomb.html

For some odd reason, Obama has made billions in loans to Brazil's oil industry.  Any chance we'll collect?  Get in line ahead of Soros?