"World Faces Wave of Epic Debt Defaults"

Ambrose Evans-Pritchard reports for the Telegraph:

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said.

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

We had been assured by all the smartest minds that we could — no, that we had to — borrow and spend out way to prosperity. And I suppose they were right, after a fashion, since we have enjoyed nearly seven solid years of the lamest recovery on record.

But the smartest minds are right only until the bills come due.

And where is the money going to come from? China isn’t just teetering, but has been burning through their foreign currency reserves in a desperate effort to prop up their equities market. The US is sitting on 19 trillion in federal debt alone, and trillion dollar annual deficits are back on the horizon even assuming everything goes well for the next few years. Europe’s been limping along for what seems like ever. Russia’s in the tank. Japan is finishing up its second decade of economic and demographic decline. The Middle East is either broke, on its way to being broke, at war, or on the precipice of war. Latin America’s good times ran out already.

So I ask again: Where is the money going to come from?

Nowhere, as White made plain for the Telegraph.

Evans-Pritchard adds:

The next task awaiting the global authorities is how to manage debt write-offs – and therefore a massive reordering of winners and losers in society – without setting off a political storm.

Good luck with that.

Europe is already choking on its influx Muslim refugees. Add another financial crisis to the mix, and most of the Continent has the potential to start looking an awful lot like the last days of Weimar Germany. Here in the States our top choices for President include a dangerously uninformed (“Triad? Never heard of it.”) reality TV host/bankruptcy king, a potential felon, and an elderly socialist waiting in the wings on the off chance the felon ever faces charges. We need principled leadership; we’re getting a clown show.

I try to stay positive. I try not to monger the doom. But it’s getting tougher and tougher.