MarketWatch: The financial crisis never really went away

[marmar]

The second debt storm
Who will bail out the countries that bailed out the world's corporations?

By Alistair Barr, MarketWatch


SAN FRANCISCO (MarketWatch) -- The financial crisis never really went away.

The debt mountain that brought down some of the world's biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. Now it's threatening countries around the globe -- and, if left unchecked, could rip the very fabric of Europe's economic system and wreck economic recoveries in the U.S., China and Latin America.

The impact on markets has been severe. The euro has slumped more than 12% against the dollar since the sovereign-debt crisis flared in southern Europe. Gold has marched to new highs as investors seek a safe haven and, perhaps most alarming, it is now more expensive to buy insurance against national default than it is to insure against corporate failure.

"The sovereign-debt crisis spun out of control in the past week, and we see no easy way to resolve it," said Madeline Schnapp, director of macroeconomic research at TrimTabs Investment Research.

Some investors and analysts are increasingly concerned that governments may be no more capable of repaying their debts than the banks and insurance companies they saved. And, they warn, if a major country comes close to default, it could trigger a financial meltdown that would eclipse the panic that followed the bankruptcy of Lehman Brothers in 2008.

The world has seen sovereign debt crises before. Latin America, Africa and Asia have all experienced upheavals sparked by excessive debt. These crises were all accompanied by stunted economic growth, inflation and weak stock market returns, which make it even harder to pay off debts. As investors and government officials ponder the current state of affairs, they see ominous signs that the developed world may be facing a similarly bleak future. ..........(more)

The complete piece is at: http://www.marketwatch.com/story/the-second-debt-storm-hits-nations-2010-05-14

[pscot]

1. A lot depends on how far the Germans and the French

are willing to go to carry the weaker Eurozone partners. Germans have never liked the Euro, blaming the new currency for a big inflationary leap, and Merke's government is already in trouble with voters over the Greek bailout. If Germany were to abandon the Euro, the bloody shambles in the currency markets would make the end of 2008 look like a day at the beach.

[Warpy]

2. All world currencies have been inflated by debt and by bets on debt

and what's going to happen, if it's allowed to, is a rapid deflationary cycle as all that bad debt and all those bets on that bad debt become uncollectable.

Trying to prevent it will likely prolong the agony. The system was unsustainable and it's finally collapsed. We're now faced with the spectacle of the men who created it and raked in the biggest paper profits from it trying to paste it together so they don't "lose" anything.

As for the rest of us, we won't know what to do until it's all over, the dust has cleared, and we look at what we have left.

[glitch]

3. What we must not do is make good on their paper profits with taxpayer money.

That is the only way it can become "real". Real profits for them and real debt and "austerity" for us.

Off with their heads.

[greencharlie]

4. Sky is blue, news at 11... nt

[dixiegrrrrl]

5. This is the warning I am hearing more frequently now:

"Unless there is a radical change of course by those in charge of fiscal policy in the U.S., Japan and the U.K., these countries' sovereigns too will, sooner (in the case of the U.K.) or later (in the case of Japan and the U.S.) be at risk of being tested by the markets," Buiter said.

Ultimately, these countries face the risk of being "denied access to new and roll-over funding, that is, of being faced with a 'sudden stop, '" he warned.

When the warning gets to the more widely read sites like Market Watch, it takes a lot of effort to deny reality.