Global Debt Crisis: Navigating Through the Icebergs

While the whole nation seems to have bought into the ‘recovery,’ idea, we remain very skeptical. Some of the numbers seem to have bottomed out. But they are still terrible…and will probably begin a new decline soon.

We say that because the underlying causes of the downturn remain unfixed…and because the government is unfixing it even more. From what we can tell, the biggest jolt of stimulus in the history of the human race has stabilized US unemployment at about 10%…nearer to 20%, if you use a broader measure. It seems to have temporarily stabilized the housing market, with housing prices down 20% to 30%. (The first-time buyer credit expiring tomorrow!) And it seems to have slowed the move towards higher savings and less consumer spending.

Stock market investors seem to think that this gives them a great opportunity to make money. But it’s hard to see how stocks could advance very much further, with the winds of de-leveraging blowing in their faces…and icebergs of debt still floating hither and yon.

This week, Greek debt broke free from the icepack and promptly sank. You can now get a higher yield from the Greeks than you can from the Argentines, which shows you how dangerous Greek debt has become.

Spanish unemployment is officially around 20% with huge debt problems of its own. And England is not far behind. In the coming elections, Britain faces the possibility of a deadlock, with no clear winner…at the same time its public finances get hit by another big wave of borrowing and refinancing.

There’s also the situation in China. Real estate in some parts of Beijing is headed down, with some areas off 18%. Chinese stocks have been coming down too, with the index about 20% below its recent peak.

As near as we can tell, the USS Economy is in the middle of a dangerous iceflow…and steaming ahead much too fast.

We reported yesterday that passengers are abandoning ship at a record rate – with citizens and stowaways headed for the life rafts. For the first time ever, more people are said to be leaving the US than entering it.

Bill Bonner
for The Daily Reckoning