Blog/Sovereign Debt Crisis
Posted Jul 13, 2016 by Martin Armstrong
The world financial crisis that is unfolding post-2015.75 is different from that which followed the 2007.15 peak in the ECM. As stated countless times, each event is a crisis in a different sector. The 2007.15 crisis was the over-leverage in real estate that the bankers created. This time, we are looking at the demise of governments. Under normal conditions, bond prices would be falling with interest rates in the public sector rising. We still see this unfolding in the peripheral markets. The markets where central banks have been buying government bonds to try to stimulate the economy has utterly failed and created a crisis beyond contemplation. We are looking at the collapse of government’s ability to issue debt as we move forward into this cycle. The only buying will be central banks at the end of the day – totally insane.
The Sovereign Debt Crisis of the 1840s was the demise of the states, thanks to Andrew Jackson shutting down the Bank of the United States. This led to a banking crisis with individual states trying to support their banks. Because the states could not create money. The states issued debt to bailout the banks, but the crisis was far too massive, and as a result, the banks took down the state governments, which had no choice but to permanently default on their debt. This time, governments are trying bail-ins and this is causing confidence to collapse. Why should people trust banks at all? Once they hoard cash; that is it. The velocity of money implodes and you end up with an economic depression.
To answer all the questions about whether this will be covered at the World Economic Conference — of course. And to answer why we did not hold one in Berlin, yes, our models were warning about significant civil unrest in Europe as a consequence of the complete fiscal mismanagement of the ECB. It appears that the negative interest rates are totally insane. This is the complete incompetence of those who think they know how to manipulate society from Larry Summers to Mario Draghi.
These people will never admit a fatal mistake. Thus, we have to stand by and what Rome burn.