Dubai is just a harbinger of things to come for sovereign debt – Jeremy Warner
These are the exact things Peter Schiff and Gerald Celente were warning about a while back. The issue with this surprise Dubai news is not that they may default on $80-90 billion in debt (the news that came out today). Rather, looking into the near future, this event may be a foreshadowing of things to come with the large industrialized nations. That’s why there was a global sell-off.
In 2007 to 2008, a financial crisis came upon the private sector. And so what did governments do? They bought up the debt amounting to trillions of dollars ($15.3 trillion to be exact). So now governments around the world hold an unsustainable amount of debt. Now what? Jeremy Warner explains it well here:
“The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.”
“Up until now, markets have assumed that the ruinous fiscal cost of addressing the financial and economic crisis was probably just about affordable to the major economies. That view may be about to be challenged.”
These issues here (amongst others) are exactly why the government should stay out of the free market. Let the companies crash that need to crash. Get rid of the entire category of “too big to fail” and let the market do what it needs to do. Governments, when they intervene, wind up distorting and elongating what should have been a two year economic meltdown at max, only for some form of short-term economic gain. Now, governments are looking like they can’t pay the bills. Lo and behold: Keynesianism in action!
Now we’ll have to see if the rest of Celente’s predictions and forecasting comes true, which is that governments, as a response to not being able to pay debt bills, will have to raise taxes, which will then in response cause some form of a tax revolt among the people. You think the tea parties were crazy? Just wait and see if they try to do this.