Where’s My Rice?

Mark these words: Sovereign Default

Not many people are exposed to these words (ummm… ok, me at least). But this will be the catch phrase for 2010. Forget ‘sub-prime’. The new lingo is sovereign default. And this 2 big words will bring the entire world down to it’s knees.

By Simon Templar

I am a believer that there will be a double dip in the world recession simply because I do not believe that the current pump priming of economies globally is going to be able to pull us out of the on-going financial crisis. Apparently the world economy is on some kind of a rebound now. Green shoots sprouting everywhere. Is it? Personally I don’t think so.

The Dubai fiasco had started the double dip. US$50 to $60 billion may seem like chicken feet compared to what the US government had to deal with (read: hundreds of billions). But is the Dubai case isolated? That will be the most important question.

What are the unfolding effects? For starters, we are now being told that a large portion of the Dubai debts is owned by British banks. The Brits are at the end of their wits and this will not go down well with their already very ill economy. And if the Brits get kicked, the Frenchies will get their knickers twisted. And the Germans then hammered. You get what I mean.

And amidst all this, a new form of disaster has emerged. Sovereign debt. The Greeks are, pardon my language; in deep shit. Sort of knee high. So that’s quite a lot of shit. Their government is unable to repay their bonds. Sovereign bonds are government bonds which are issued and denominated in foreign currency. So upon maturity, the issuing government will have to repay the bond holders in the denominated foreign currency. If the said government is unable to purchase the said foreign currency for repayment of debt, they are screwed.

And this is what we are facing now. We in Malaysia are not getting a lot of coverage on this, yet. Just like the beginning of the sub-prime crisis in the States. We are after all frogs living under coconut shells.

Read more at: http://saltpepperandalittlekicap.blogspot.com/2010/02/wheres-my-rice.html