The largest and worst sovereign debt crisis, ever, is
rapidly approaching.
Greece is now at its tipping point. As I pen this issue, the
government of Greece is desperately trying to stave off default on a 750
million euro repayment ($835.7 million) to the International Monetary Fund
(IMF).
Whether Greece gets concessions or not, won't matter.
Because come June, Greece faces another 2.6 billion euro repayment (US $2.9
billion).
And come July and August, it will face a whopping 8.7
billion euro ($9.69 billion) repayment — 7 billion ($7.8 billion) of which is
owed to the European Central Bank (ECB).
This summer, Greece needs to come up with 8.7 billion euros
for the ECB.
There is simply no way Greece can pay off that debt. It
doesn't have the money. Just to make a minor 200 million euro payment last
week, the Greek government had to call in all excess cash from regional banks,
leaving government employees and pensioners waiting for their checks.
Nor can Greece rollover the debt without paying excessive
interest rates — near 12 percent for 10-year money — bankrupting the country
even further.
Meanwhile, the IMF and the ECB are ramming more and more
austerity measures down the throats of the Greek people — all in the name of
making sure bondholders and authorities get repaid.
I ask you, is this what the world has come to? Sacrificing
the lives of ordinary people to make sure creditors get repaid?
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Already in Greece, a recent study shows that the suicide
rate has soared 36 percent during the crisis. Not surprising considering the
stress the Greek people are under which, in turn, has forced unemployment to
25.4 percent and youth unemployment stands at a whopping 50.1 percent.
If you think Greece is to blame, think again. Sure, like any
country, Greece has its tax cheats and black market economy. But in 2001,
Greece was essentially held at gunpoint to join the euro, through forced
financings at attractive low interest rates. And now that it has having trouble
repaying that debt, Greece is being held at gunpoint again.
Thing is, it's not just Greece that is about to reach the
tipping point. All of Europe is about to
go under. You can see the most indebted of them compared to their GDP.
While Greece is certainly the worst, Italy isn't far behind,
or is Portugal. And of those European countries that have debt levels just
above or below the 100 percent of GDP level, don't let anyone kid you. Not one
of these countries is capable of servicing its debt, not even France.
Lest you think a sovereign debt crisis is confined to
Europe, think again. Europe's sovereign debt crisis is merely the starting
point. Japan's debt stands at more than 24 percent of GDP, nearly $12 trillion.
And worst of all is, yes, none other than the United States,
where Washington is in hock — not for just its $18 trillion national debt — but
for more than $215 trillion — the worst and biggest debt in the history of
civilization at nearly 12 times our GDP.
Put another way, if you took every penny of what our country
produces in a single year, it would take 12 years to pay off that debt. Put yet
another way, it would require each and every American to give up their earnings
and production, essentially go bankrupt, for 12 straight years. And that's not
even counting the interest expense on the debt, which is sure to rise in the
months and years ahead.
A sovereign debt crisis of unprecedented proportions? You
bet it is. We all knew it was lurking out there, and now, it's here. Greece is
merely the starting, tipping point.
One of the most important aspects of this sovereign debt
crisis as it unfolds over the next several years will be how they impact the
financial markets. Understand that, and you will survive. Thing is, very few
indeed will understand what will really happen. So let me summarize it now.
First, and most obvious, government bond markets are headed
into the abyss. Don't touch sovereign debt with a 100-foot pole. Do so and you
might as well commit financial suicide.
Second, and far less obvious, gold and commodities
generally: At the beginning stage of the crisis, now, commodities, including
precious metals, will remain caught in deflation.
Why? It's actually rather simple. In the beginning phase of
a sovereign debt crisis, investors of all sorts seek the safe haven of hoarding
cash. And since the U.S. dollar is still the world's reserve currency, that's
bullish for the dollar, and bearish for commodities. But later in the crisis,
that thinking will invert, and ...
Third, once commodities reach their lows in a panic sell
off, they will take flight to the upside, in a massive new bull market, one
which will ultimately see gold hit better than $5,000 an ounce.
Why? Because later in the crisis it will become apparent
that it is not just the government of Europe that is going under, but also the
governments of Japan and the United States.
And when that recognition comes, it will reignite a bull
market in commodities and all sorts of tangible assets. In addition ..
Fourth, most will expect U.S. equity markets to crash. But
that's dead wrong. The history of sovereign debt crises is that stock markets
perform exceptionally well — when government, the public sector, not the
private sector, is going bust.
Why? Because no one would dare lend money to government.
Because the U.S. stock markets represent the safest, deepest, most liquid
bastion of capitalism on the planet. And because our biggest companies, very
simply put, will outlast our government.
So get ready. The worst sovereign debt crisis, ever, is
right around the corner.
Source:
moneyandmarkets.com, Money and
Markets: A Division of Weiss Research, Inc. | 4400 Northcorp Parkway | Palm
Beach Gardens, FL 33410 | 1-800-291-8545
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