Newsletter: March 2010

Sovereign Debt = Sub-Prime Debt

Acamar Journal
Mar 16, 2010

At the PDAC mining conference in Toronto last week, I thought the turnout was less than last year. This made sense, as by March 2009, investors had lost their shirts and were desperate for information on how to get their money back. Complacency has now set in with this year-long market rally.

We know that governments issued unprecedented amounts of debt to rescue the global economy from collapse.

But the crisis was caused by too much debt and leverage at a consumer and corporate level. Who will save us when government debt becomes the cause of the next crisis?

The United States is projected to run budget deficits for the next 70 years, based on long-term projections by the Congressional Budget Office. Which means it will never pay back its current gargantuan debt, and which makes the dollar vulnerable. In fact, Moodys, the debt rating service (which regrettably missed warning us about the debt crisis before it happened) is now diligently informing us that the US could lose its AAA rating.

In Europe, Standard and Poor’s (the other debt rating agency that missed the whole financial crisis as well) is now on the ball, warning that Europe needs to raise € 1.5 trillion this year.

And the games continue as well. Before 2007, there was a $ 10 trillion shadow banking system that was unregulated and leveraged, which blew up. Now we learn that Goldman Sachs helped Greece hide its deficits in order to meet Maastricht Treaty requirements and that governments, such as France and Austria, are using “alternate channels of borrowingâ€