Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."
In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line.
The European financial crisis may look and smell rather different to the American banking crisis of a couple of years ago, but strip away the details – the breakdown of the euro, the crumbling of the Spanish banking system to take just two – and what you are left with is the next leg of a global financial crisis. Politicians temporarily "solved" the sub-prime crisis of 2007 and 2008 by nationalising billions of pounds' worth of bank debt. While this helped reinject a little confidence into markets, the real upshot was merely to transfer that debt on to public-sector balance sheets.
The problem is that this has to stop somewhere, and that gasping noise over the past couple of weeks is the sound of millions of investors realising, all at once, that the music might have stopped. Having leapt back into the market in 2009 and fuelled the biggest stock-market leap since the recovery from the Wall Street Crash in the early 1930s, investors have suddenly deserted. London's FTSE 100 has lost 15 per cent of its value in little more than a month. The mayhem on European bourses is even worse, while on Wall Street the Dow Jones teeters on the brink of the talismanic 10,000 level.
The problem is not merely that holders of Greek government debt would dump their investments, or even that they would ditch their Spanish and Portuguese bonds while they were at it. It is that government debt is the very bedrock of the financial system: should Greek government bonds collapse, the country's banking system would become insolvent overnight. In fact, banks throughout the euro area would be at risk, given that they tend to hold so much of their neighbours' government debt. That, at least, is the theory, but as was the case in the aftermath of Lehman's collapse, no one really knows how great their exposure is.
via telegraph.co.uk
This feels like the "End Game" to me. At best the weight of uncertainty is enormous.
Where is the safe haven? At the moment it is the US Dollar and US Treasuries.
But if we look at the US - the fundamentals are not good there either.
I have struggled with "What to do?" Because we live in a system, other than retreating off grid there is not much we can do - we are embedded in the system. When Rome fell, you could not have your little Island of Empire that remained safe.
But maybe what you can "do" is to have a prepared mind. If you can only see our current reality as the only reality, then you may not be able to cope with what is to come. You will dwell in the denial phase too long.
This is what happened to many Jewish families in Germany in the early 1930's. You business was not movable - you had a shop or were a lawyer or dentist. Your family had been in Berlin for 200 years and your father had won the Iron Cross in WWI. You were German. Germany was the most cultured nation on Earth. But it was clear by 1933 what was coming.
A few could see the inevitable, that they would be made the scapegoat. They gave up everything and left while they could. Those that could not do this perished.
So I think the "Do" now is to be open for how big a change could confront us.
I see signs in the States that the new budget realities are going to strip out the services that all relied on. Teachers are already feeling the pain. All those who work for government and those that rely on government are going top feel the pain - there is no stopping this. The States cannot have a deficit and there is no way that their income can meet their outgoings. Soon as in Europe Pensions will be put on the table.
In Europe the entire social system will go away. In fact governments will tax and tax but only to pay the banks. The people will only get the pain. How long can that be sustained?
So what about us? We live in a hyper connected system. We cannot escape.
In places like PEI - we are already like Greece. We rely on the feds and a tiny group of people to pay the taxes and we commit to relatively massive social spending. We can do this now because we can finance the deficit. Interest rates are low and the market is open for us.
So when nations in Europe are rated as junk and maybe in default and the same is true for many states in the US, how will PEI finance its debt?
How can we avoid what is happening to nations and states? Do you see a way?
