Sovereign Default

What the heck is "sovereign default"...and why are they talking about it in the Wall Street Journal today?

Good questions.

The simple answers to those questions are; when a country doesn't pay the debts that it owes, it's called "sovereign default" AND...because the Wall Street Journal article thinks we are going to start seeing countries default on their IOU's.

Oh yeah...for anyone who was in adult ed last Sunday, take note that this is just one more article that makes mention of the IMF. (International Monetary Fund).

Wednesday's market jitters have served as a reminder that worries of a sovereign default haven't disappeared, despite the big rescue packages lined up for Greece and other shaky euro-zone economies.

In a paper this month, staffers at the International Monetary Fund argued that sovereign default in advanced economies is "unnecessary, undesirable and unlikely."

But among those who beg to differ is Willem Buiter, Citigroup's chief economist. In a report last week, he dismisses the IMF claim as "based on bad economics and simplistic political economy."

He says no government credit is safe from the risk of default because it is harder than ever to rein in budget deficits. That's for three main reasons:

—Demand for public spending has grown in most advanced economies faster than the capacity to tax. Apart from building public resentment, higher taxes risk damaging incentives to work, educate oneself, save and invest.

—Politics in many countries have become highly polarized, making it harder for political systems to work out who should suffer the pain of government retrenchment. Prime examples of such polarized societies? Greece and the U.S.

—Tax administration has become less effective. Tax avoidance and evasion appears to have grown everywhere in Europe and the U.S. since World War II as has the gray economy, encouraged by globalization. The further one moves to the south and east in Europe, as a general rule, the bigger share of economic activity takes place in the informal sector.

Now, pay close attention to these comments;

It's not that governments can't pay. But some may be unwilling or unable to inflict on their populations the economic pain required to ensure debts are repaid in full and total debt reduced to sustainable levels.

"The country most at risk is, in our view, Greece, followed by a sizeable gap and then a small cohort of countries including Ireland, Portugal, and Spain, followed by another large gap and then Italy, Belgium, Austria, Japan and, at horizons longer than five years, the U.S.," Mr. Buiter says in the report.

See it here; http://online.wsj.com/article/SB10001424052748703384204575509643539209752.html?mod=WSJ_article_MoreIn_Economy

Did you catch that? Some governments may not be able to inflict the pain on their voters necessary to get spending back in line. And then notice that he mentions the USA in default risk out past 5 years...after all these other countries have defaulted on their paper. That's because we are expected to issue another $6 to 10 trillion of IOU's over the next 5 years.

If you are already seeing riots in Greece because the government is trying to cut spending...and you are seeing riots in France because the government asked workers to work til age 62 instead of 60....what do you think is going to be the outcome in the USA when we start cutting Social Security, Medicare and Welfare?

I wonder if it's this understanding of what's coming that prompted Dr. David Jeremiah to write his latest book titled; THE COMING ECONOMIC ARMAGEDDON.

One other thing....the stock market is up 180 points today. Wooo-hooo!! (insert sarcasm into that little yelp) No one can figure out why....as the normal fundamentals of what makes the market move up or down...seem to have vanished.

I know one thing for sure....the Bible says that during The Tribulation that the entire global economy will collapse (Revelation 18)....so one thing we should be watching for today is for nations to collapse. We should expect to see greater economic turmoil as we approach The Tribulation.