The Global Debt Bomb

Countries around the world took on massive amounts of debt in in the last two years to help fend off economic disaster by bailing out banks and fostering growth. But in many cases, this has worsened a pre-existing debt problem and raised debt-to-GDP ratios to astronomical levels. How all this debt will be paid off remains uncertain: an economy needs to grow fast enough to allow the government to retire its debt and provide social services, but high debt levels tend to squelch growth. A vicious cycle. Market observers believe that 2010 could see the start of sovereign debt defaults. Greece, Ukraine, and Portugal are on the list of potential defaults; but even staid sovereign credits like Switzerland are at risk due its banking sector turmoil. But Japan remains the favorite due to low growth and demographic hurdles. The worst part is that sovereign defaults can have a cascading effect, pulling other nations into default. But no one has predicted such a scenario as yet. – YaleGlobal