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The new reality - debt, deficits and sovereign crises

The Dubai and Greek crises have forced investors to pay attention to something long ignored – rising sovereign risk. For an analysis and possible solutions for the Greek crisis, read here.

Given the scale of fiscal deterioration in much of the developed world, the trouble is unlikely to end with Greece. Ballooning national debts and out of control deficits are not just a European issue either. Most advanced economies are facing huge fiscal problems. Read here for details and charts.

Extreme debt/GDP levels, high government spending and demographic challenges in most advanced economies will lead to a future of slow economic growth and high unemployment. Statistics and charts here.

Over the next decade sovereign debt crises appear inevitable. Those countries that can resort to the printing presses will take the path of a massive monetization of debt. For others default will be the only option.

Chances we will witness drastic spending cuts - the most desirable way to address the problem - in the UK, US and across the eurozone in the next few years are rather slim. Instead, the prescription of the Obama and Brown administrations is more debt, more spending and more taxes.

US government spending has grown seven times as much in real terms as median household income over the last 40 years. The total number of government jobs exceeds the total number of goods producing jobs. More here.

The UK, already having the world’s highest total debt/GDP (along with Japan) and one of the worst budget deficits at 12.6% of GDP, continues to run up debt at an alarming speed. 
Government spending has exploded over the last 13 years and is now completely out of control. But one would look in vain for austerity measures and severe fiscal tightening, not just from the Labour government, but also the (so-called) Conservatives. There is no political will to face the excessive debt, no meaningful plans for deficit reduction. Details of pitiful deficit reduction plans are here. 

The massive tax hikes will cause further damage to the dwindling private sector already suffocated by a gargantuan web of high taxes, red tape, hostile regulation and uncertain political environment. Which fits rather nicely with the objective of government expansion and redistribution of wealth from the productive to the idle. 

For full details of why Greece is only the start and how the developed world is heading into inevitable sovereign debt crises, defaults and hyperinflation, read here.