Tuesday, March 9, 2010

Bud Conrad on sovereign debt

His notes:

We have gone through 3 of 4 predictable ordered phases:

1) Credit Bubble (everywhere, even subprime);

2) Credit Crisis from the bubble burst;

3) Massive Bailout, with the government absorbing the bad credit going into debt to lift the collapsing private sector, keep politicians in power, and support industries slopping at the government trough;

Leaving us with one more logical extension:

4) Currency Crisis. The massive government debt can't be paid off, confidence in the dollar will weaken more, and the eventual result will be repudiation of the debts that can't be paid. That is the step that comes after the Banking/Financial/Credit Crisis.

In our case, it is assured by the accumulated trade deficit on top of the government deficit. I was trying to give some parameters about that toward the end when Brian was asking for a time frame. The fact is that I don't know when, but I'm confident it will happen; in part because no one is worried about it.

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