Allow me to introduce you to the term that will now stalk your daydreams, haunt your nightmares and invade your consciousness through at least the spring…
When an economic crisis in one country’s bond or equity markets spreads to other countries which experience the same problems. The term comes from the more general definition of contagion, which is a highly transmittable disease.
Sovereign entities around the world will continue to be under the microscope. They face a perfect storm consisting of
- Less incoming tax revenue
- More strain on their capacity to provide assistance to local governments and citizens
- Tougher funding environment to roll or refinance debt
- The shifting of obligations and risks from bailed out corporations
- Politically poisonous after-effects from the enabling of the global kleptocracy
The question now becomes whether or not the insolvency of one nation becomes a problem for all nations. Debt contagion also comes into play at a municipal level. We’ve been documenting the crises being faced by communities all over the US.
Watch the headlines coming out of Europe, Asia and the Middle East for stories about sovereign debt and who has exposure to it.
Containment or contagion – that is the only story that matters right now. And the global banking system’s track record for “containment” is not cute, btw.