Politicians of all stripes, central bankers and economists employed by stock brokerage firms are all cheering us up-claiming (more like wishing) that things are getting better on the economic front, yet behind the scenes out of public view, bankers and hedge fund managers are in fact,getting more concerned. ( ..shades of warnings that we saw in 2006 on the Smart Economy blog about the pending US housing collapse and the imploding financial banking system.)
The latest to go public with warnings to its customers is the French bank Société Générale who has advised wealthy clients to be ready for a possible "global economic collapse" over the next two years, according to The Telegraph in the
SocGen says that under the worst bear-case scenario, the dollar would continue to decline and global equities would retest the March lows. Property prices would slide again and oil prices would fall back to $50 in 2010. Public debt would explode within two years, with worldwide state debt reaching $45 trillion. Further, the aging population will make it harder to erode debt through growth. As for the
Have you adjusted your business strategy playbook for this contingency? Where you shocked by the financial crisis and did you miss the opportunity windows the first time around in 2007-2008? Do you know how to mitigate the looming threats and seize these new once-in-a-lifetime opportunities again?
What could trigger this collapse? It could be a number of things such as a combination of various debt bubbles (18 at last count ) which we have discussed in length before in this blog. One growing possibility is a country defaulting on its soveriegn debt. This is not unusual and not really out of the ordinary. We see one or two countries declaring bankrupcy every decade, --remember Russia, or Argentina in the 1908's etc? Well the global banking system can handle a rescue of one or two countries at a time. But, what if this time around we had a cascading failure of a dozen or so failed states like dominoes all collapsing at once? The global economic and financial system is not set up to handle this disaster wild card.
Who could that be on that failed states list?
The Top 10 Safest Sovereign Debt List (based on Credit Default Swaps thiis week ) includes Australia, New Zealand, Belgium, Norway, France, Germany, the Netherlands, Finland, the U.S., Denmark
Countries with the highest perceived default risk include
Wild Card-Dubai (UPDATE Bloomberg Nov 26, 2009) or another oil/gas petro states (such as Russia) may default due to falling commodity prices and growing debt.
From Oct 2008.....The creditworthiness of at least 20 countries around the world has more than halved in the last six months as the global credit crisis has deepened. There are growing fears that other countries such as Pakistan, Iceland, three Baltic states -Estonia, Lithuania, and Latvia, Hungary, Bulgaria, Romania, Serbia, Sweden, Ukraine, Russia, Greece, Italy, (and others in the Eurozone), Turkey, Kazakhstan, Vietnam, South Korea, Venezuela, Mexico, Bolivia and Argentina could all slide into a downward spiral towards bankruptcy..
...as Harvard historian Niall Ferguson warns today in a story in the Globe and Mail (There will be Blood Part 2) .."we are now in uncharted waters."
Author of the soon-to-be published book-
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