Disastrous Bond Sale in Germany

Quick review;  when governments need money they can either sell bonds (IOU's) or collect taxes.  The bonds are sold at auction with the bidder who bid the lowest interest rate getting that paper.

So what happens if you have a bond auction and few people show up because the interest is low on what it is you are selling?

The result is higher interest rates.  And those rates can spell disaster for a country who lives on borrowed money....as most of The West does.  Think about what will happen when the USA goes to sell bonds and few people show up and the rate goes to 7% like it has in Italy?  We can't pay the interest on $15 trillion at 7%.

So look what happened in Germany when they had an auction yesterday.

(Reuters) - A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was even starting to threaten Berlin, with the leaders of the euro zone's two biggest economies still firmly at odds over a longer-term structural solution.

Investors were also unnerved by reports that Belgium is leaning on France to pay more into emergency support for failed lender Dexia under a 90-billion-euro ($120 billion) rescue deal that had appeared done and dusted.

A special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances like a new downturn in growth or support for banks without endangering its cherished AAA credit status.

After one of the least successful debt sales by Europe's powerhouse economy since the launch of the single currency, the euro fell to 1.336 to the dollar and European shares sank to 7-week lows.

See it here;  http://www.reuters.com/article/2011/11/23/us-eurozone-idUSTRE7AM0VR20111123

Can you see now how this whole system could unravel?  If the confidence in governments evaporates...no one will buy the IOU's.  And if no one buys the IOU's....the governments will come to a screeching halt.  And if the governments come to a screeching halt....social unrest will blanket the land like a fresh snow.