Financial Crisis: Who Will Be Next to Reach Deadly Default?

Venezuela is an extreme example of a nation driven to deadly default by a string of bad government policies. Why “deadly default?” People are dying in Venezuela because hospitals, other institutions, and much of the public cannot afford foods, medicines, intravenous fluids, electricity, and the other things that keep people alive in a “modern” society.

Venezuela in Default

Venezuela in Default
The economic crisis in this country has exploded into a public health emergency, claiming the lives of untold numbers of Venezuelans. It is just part of a larger unraveling here…


Venezuela achieved “fast default” via the abysmal economic and political policies of the late president Hugo Chavez and his successors in power, combined with a global drop in oil prices. Other nations and sub-national jurisdictions are achieving default by slower methods — including via demographic contraction.

Venezuela is a Preview of Coming Economic Attractions

Venezuela was once a relatively wealthy member of the Latin American community of nations. But that was before the socialism of Hugo Chavez swept through every part of the country, destroying human opportunity and initiative.

Most nations are approaching a slower type of default via the progressive buildup of massive national debts that can not be serviced by any reasonable means — especially when their working age populations are contracting.

Countries that do not sell their bonds in their own currency, such as Greece with euro-denominated bonds or Argentina with U.S. dollar-denominated bonds, can and do go into explicit defaults because they run out of foreign currency to pay the interest and principal. U.S. states, cities and territories, like Puerto Rico, can also default on their debt because they cannot print the U.S. dollars in which their bonds are denominated.

… the Italian banking sector is saddled with debt that it is unlikely to be able to service, and the government debt is well over 100 percent of gross domestic product. A small shock might well cause major Italian banks to default, which could cascade throughout Europe. __ Next Financial Crisis

Nations such as Italy, Greece, Russia, and others with increasingly troubled economic systems, are also burdened by a shrinkage of their productive populations. The link between demographic shifts and contraction, and economic trouble, is more than mere coincidental correlation.

As the Greeks, Brazilians, Russians and many others are learning, the real value of the wages and government transfer payments they receive will fall until the total value of their collective output once again exceeds their consumption and depreciated capital. At that point, their economies will begin to grow again. __ Richard Rahn

But the total value of the collective output of workers in Greece, Italy, Russia, Spain, and other nations experiencing a collapse of productive populations, will never return to earlier levels without significant changes in governmental policies that make it more attractive for young indigenous people of talent to marry and raise families. Such policy changes will be almost impossible to achieve.

Economic Rating Services Cannot be Trusted

Rating services such as Moody’s and Standard and Poors, were caught flat-footed by the 2007-2008 global financial crisis. And they continue to be off-balance with regard to sovereign funds in demographically and economically troubled nations, including Russia. They cannot be trusted to reflect real world conditions.

Intelligent and wise persons always keep at least one eye on fundamental issues such as demographics, economic diversity and versatility, political flexibility, average IQ, crime rates, levels of economic freedom, power and size of state-owned enterprises, levels of official corruption, etc.

By most of those measures, southern Europe and the BRICS are significantly over-rated by virtually everyone, for the long-term prospects.

Deadly default is a reality in Venezuela. Argentina has avoided the problem by voting out the Peronistas. Demographically contracting nations of southern Europe are scooting further and further out on the limb of the debt tree. Detroit is in perpetual economic default

The U.S. government is not going to explicitly default on its debt because it sells its bonds in its own currency and prints its own money — even though the real value of the principal and interest can be reduced through inflation. __ Coming Crisis

Over the long term, the above quote should come as cold comfort to US residents. Fortunately for the US, it has a lot of other things going for it, which partially overcome the adverse effects of bad governance on federal, state, and local levels.

More on the luck of the US:

The US government is spending itself into a drunken stupour, but the government is not the country. The underlying fundamentals of America — as opposed to the United States Government — are on the whole quite respectable. The underlying demographics of the US are in decline, but the mechanisms of “market dominant minority” combined with the magic of automation can keep US production high for decades to come.

None of this reduces the desperate need for parallel infrastructure and supply lines in the Anglosphere (and Europe). But default is likely to fall at different levels of criticality for different parts of Europe and the world.

Focus on fundamentals, including demography and political / economic freedoms, along with human capital measures such as average IQ.

Economic Success Correlates With National Average IQ More at VDare

Economic Success Correlates With National Average IQ
More at VDare

A better map might include executive function along with IQ and innovation levels, in correlating population “aptitude” with national GDP. The greater the number of valid measures of human capital one can use for national comparisons, the better.

China has a high average population IQ, for example, but the Chinese people are kept on a tight leash. Human capital is not developed, or is badly squandered by the state. As a result, most people in China live in poverty, and China as a whole is growing ever more volatile — and not a good place to do business.

Top Foreign Holders of US Securities

US treasury securities are widely considered a relatively stable repository of value, although the sheer magnitude of outstanding US treasuries indicates an unhealthy level national debt — particularly when much of it represents entitlement spending. And yet, even the very low yield on US treasuries does not prevent international holders from treating this form of debt as if it were a true repository of value. This paradoxical valuation of US treasury debt by foreign holders is a reflection of both the real productivity of the US economy, and the much vaster latent productivity that is possible for a nation that possesses the underlying fundamentals of the land, population, and infrastructure currently being stifled by unwise US governmental policies.

Statistic: Major foreign holders of U.S. treasury securities, as of December 2015 (in billion U.S. dollars) | Statista
Find more statistics at Statista

China’s Impossible Catch 22

Few modern thinkers, writers, and intellectuals understand the meaning of the saying: “The government is not the country.” Once more people understand what that sentence means, we are apt to see the creation of more Dangerous Children — self-reliant people who think and provide for themselves, rather than joining the mindless herd of government dependents. That would be a huge threat to the powers that be.

More:

Crushing Cost of Bad Regulation
The cost of Obama’s massive overburden of new regulations have barely begun to be felt. Expect a strong anti-regulatory counter-surge of private interests from the mom and pop level all the way up to multinationals, as the business killing effects of bad regulation become more widely known.

China’s Debt Bubble Building
A great scam if you can pull it off. Eventually a day of reckoning comes.

Gloomy Prospects in Russia
Given the facts, one must be a total fool or completely corrupt to admire Putin today.

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