Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (47778)	3/25/2009 10:40:40 AM
From: elmatador	Read Replies (1) \| Respond to of 220285

Global 'nightmares': insolvent countries Economics commentator sees potential for Russia or even Britain to default on debts as they spend to bail out their economies The next phase of the global economic crisis could see a string of countries falling into insolvency, a well-known financial author says. Martin Wolf, chief economics commentator for London's Financial Times, said it is possible that Russia and even, in a worst case, Britain could default on its debts and effectively become insolvent. "We have a global economic crisis now. It has affected every country in the world, which means we can expect anything I think," Mr. Wolf told the editorial board of The Globe and Mail yesterday. "It doesn't seem to me to take an incredible amount of imagination to say there will be further financial shocks." He said the encouraging news from the stock market, which has risen sharply this month, "I regard as the sort of nonsense one should ignore." Mr. Wolf said most of the countries that are on the edge are small. So far only tiny Iceland has come completely unglued. Several others, such as Hungary, Ukraine and the Baltic states, are flirting with financial ruin. But if the crisis continues, "you can perfectly well imagine some rather significant countries being affected." He said that "if you really want serious nightmares," then it is possible that larger countries, including some in the European Union, could become insolvent because they have guaranteed so much of the debt held by their staggering banks. If those banks got into further trouble, governments could be dragged down with them. It is "probably the case - but I will only say probably - that the major countries of the world will absorb these shocks and remain solvent," Mr. Wolf said. But he added that "there's clearly an immense amount of risk out there - an immense amount of risk, and very unpredictable things will happen." A British default, for example, "would blow the world up pretty thoroughly. This would be a pretty major event." Mr. Wolf, who is associate editor of the Financial Times, is the author of last year's Fixing Global Finance. His also wrote 2004's Why Globalization Works. He is in Toronto for a symposium today hosted by the Japan Society. Even if bigger, developed countries avoid insolvency, they will all be strapped with "monstrous" debt from stimulating their economies and bailing out banks, Mr. Wolf said. U.S. banks could need another $1-trillion (U.S.) of government backing to stay solvent, he said, though he cautioned that it was hard to determine their exact needs. But after the scandal about bonuses paid to executives at insurance company American International Group Inc., it is hard to imagine the U.S. Congress producing those funds, he said. Along with governments, he said, many big global companies could face insolvency in the months ahead. Some companies in emerging countries such as India took on huge debts as they expanded during the recent boom years. He predicted a series of bankruptcies as those debts come due at the same time as companies see their revenues collapse. Another leading economic commentator, Richard Koo, who is chief economist for the Nomura Research Institute in Tokyo, told The Globe's editorial board that governments in the Western world have not moved fast enough to shore up their economies. Although the U.S. government has devoted $787-billion (U.S.) to economic stimulus, much of it will not actually be spent till later this year, Mr. Koo said. By that time, he said, millions more Americans will have been thrown out of work. Based on Mr. Koo's study of Japan's experience in the "lost decade" of the 1990s, it is critical to move quickly and keep the stimulus money flowing, not spend it in fits and starts, he said. "If I got to advise [U.S. President Barack] Obama, I'd say, 'Do anything possible now, even if you have to dig ditches and fill them up.' "