THE Sovereign debt crisis engulfing Europe has now spread like cancer to the US.
Fitch, a leading Credit Agency, last Wednesday warned that the US was not immune to the crisis in Europe.
The Dow Jones index on Wall Street plunged 190 points in 10 minutes after the announcement.
If the Sovereign debt issue remains unchecked, a global recession is on the cards.
Countries that continue to embrace an operating methodology that deepens their national debt because it is the path of least resistance have now set in motion repercussions that cannot be overridden. We live in a global economy, and unlike depressions of the past, the effects of an economic meltdown in Europe or the US will be felt worldwide.
National Sovereign debt has global consequences. Our economies are interconnected to such a great degree that we face a global depression for the first time in history. If solutions and serious action are not forthcoming it could escalate past this current global recession and move into the unthinkable. We could propel ourselves into a depression, but one on a global scale. These issues must be faced head on, or our economic fabric as we know it will tear. The EU is comprised of 27 sovereign nations. That’s 27 leaders, 27 central banks, 27 distinct and different opinions. But they do have one very common thread: the vast majority of these countries maintain a fiscal policy that deepens their debt and widens their ability to repay it.
Greece has a GDP that ranks its economy as the 32nd largest in the world. But consider this: its GDP growth is -7.3%, with an 18.4 % unemployment rate. Greece has amassed a gross external debt of €532.9 billion. Its public debt is 144 per cent of its 2010 GDP.
Spain has a GDP of €1.05 trillion, ranking its economy as the 12th largest. The GDP it not shrinking like Greece’s, but with a growth rate of 0.8 %, it’s not growing either. With a gross external debt of $2.166 trillion its credit rating was cut by two notches in October to A-. On Thursday last week, Spains bonds sold at over 6% – proof that this is yet another country that is embracing the fear factor.
Ireland’s gross external debt now stands at $2.287 trillion. Portugal’s gross external debt now stands at 497 billion, 210 % of their GDP. France has a gross external debt of 4.698 trillion. Italy’s external debt is only 2.23 trillion. The figures are numbing but the real key to this issue is that every country that faces a debt crisis continues to spend more than the revenues it takes in.
So, in a nutshell, unless European (and now US) politicians take heed of the signals that the market place are telling them, we are heading over the cliff. Many years ago there was a saying: Earn a pound, spend 21 shillings, disaster.
Earn a pound, spend 19 shillings, bliss.”
Governments of Europe take note of what Mr Micawber had to say all those years ago! His words should ring home when you continue to write cheques and print more money. It is not too late to avert Global disaster, but if action isn’t taken right now, we are heading to the most significant financial meltdown the modern World has ever seen.