Is a Bond Crisis Inevitable?

Saturday, January 1, 2011
By Paul Martin

by Patrick J. Buchanan
LewRockwell.com

Is a Bond Crisis Inevitable?

With Christmas shoppers out in force and the stock market surging to a two-year high, talk is spreading that the long-awaited recovery is at hand.

Perhaps.

But gleaning the news from Europe and Asia as U.S. cities, states and the federal government sink into debt, it is difficult to believe a worldwide financial crisis that hammers governments, banks and bondholders alike can be long averted. Consider.

Fitch and Moody’s have just downgraded the debt of Ireland, Greece, Portugal and Hungary. In Budapest, the politicians talk of default. Spain has been warned its debt and banks could be downgraded.

The European Central Bank is buying up this paper to prevent panic selling by investors. There is talk of forcing bondholders to take a haircut. They would trade their suspect bonds for new euro bonds whose face value would be appreciably less.

In the Latin American debt crisis, the United States bailed out its banks holding the bad paper by giving them U.S.-backed bonds, while forcing them to take a loss on their Latin bonds. Courtesy of Uncle Sam, Latin America walked away from a huge slice of its debt.

The Japanese national debt is slated to pass 200 percent of gross domestic product this year, highest of any major economy on earth. Half of Japan’s spending is now financed by bonds. Tax revenues do not even cover 50 percent.

Nor is America out of the woods.

The Rest…HERE

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