Sovereign debt crisis at 'boiling point', warns Bank for International Settlements

Telegraph ^ | 04/08/10 | Ambrose Evans-Pritchard

[TigerLikesRooster]

Sovereign debt crisis at 'boiling point', warns Bank for International Settlements

The Bank for International Settlements does not mince words. Sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe, threatening to set off a bond crisis at the heart of the global economy.

By Ambrose Evans-Pritchard, International Business Editor

Published: 6:31AM BST 08 Apr 2010

Bond investors are waiting for Governments to lay out clear plans for deficit reduction

"The aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to the boiling point", said the Swiss-based bank for central bankers -- the oldest and most venerable of the world's financial watchdogs. Drastic austerity measures will be needed to head off a compound interest spiral, if it is not already too late for some.

The risk is an "abrupt rise in government bond yields" as investors choke on a surfeit of public debt. "Bond traders are notoriously short-sighted, assuming they can get out before the storm hits: their time horizons are days or weeks, not years or decade. We take a longer and less benign view of current developments," said the study, entitled "The Future of Public Debt", by the bank's chief economist Stephen Cecchetti.

"The question is when markets will start putting pressure on governments, not if. When will investors start demanding a much higher compensation for holding increasingly large amounts of public debt? In some countries, unstable debt dynamics -- in which higher debt levels lead to higher interest rates, which then lead to even higher debt levels -- are already clearly on the horizon."

[Oceander]

It doesn’t have to keep pace with inflation jot for jot and tittle for tittle, all it has to do is keep sufficiently close to make it practically impossible to inflate our way out of the unfunded liabilities - which it will almost certainly do.

[helpfulresearcher]

IMHO: The major earthquake in Southern California will take the financially teetering state from its delicate balancing act into full blown collapse. I suspect there will be a domino effect of budget busting to other sovereign debts.

It is coming soon, and will make all this other stuff look like rearranging deck chairs on the Titanic.