The decade which ended last December 31 was the biggest borrowing and spending decade in global history. It saw three of the biggest credit crashes in global history too. There was the global stock market crashes at the beginning and the end of the decade. And in between there was the global real estate crash, the one which ushered in the Global Financial Crisis.
The global financial system did make it through the last decade, by the skin of its teeth, on the back of direct monetisation of government debt by central banks and a refusal to let the "collateral" which had underpinned the earlier credit booms be valued by anyone. By the end of the decade, banking systems everywhere had been nationalised in all but name. Valuations on almost every type of investment "asset" were either being artificially propped up by government guarantee or hidden from impolite eyes in bloated central bank "balance sheets". Through all this, the question of "sovereign debt" was successfully kept out of public debate, at least until very late in 2009. With 2010 still just getting started, that is no longer the case, as a glance at the news of the past two weeks should have made very clear.
Since before the start of the GFC, The Privateer has warned that the LAST stage of the debt deflation which has swept the world would take place when GOVERNMENTS started to go broke. On their present trajectory, governments WILL start to go broke, in public, in the not too distant future. One thing is certain. This decade will not be successfully navigated using the methods of the previous one.
From: "The Global Market Report"
©2010 - The Privateer market letter
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