Apparently the Chinese didn't learn much from the US property bust; they've made precisely the same mistakes, and it's starting to have serious effects on the broader economy.
Meanwhile, speaker after speaker acknowledged the massive insolvency issues that await the United States... and further argued that Greece is just the beginning of Europe's problems.
Here's the thing about governments going bust-- it's been happening for centuries. Default is nearly as old as the concept of the sovereign bond itself, and history is generous with examples.
Spain has defaulted 15 times since the 16th century. Greece has defaulted 5 times since the 19th century. Portugal has defaulted 7 times since the 16th century.
What's happening right now is nothing new. Neither is government response.
You see, when governments get deeper and deeper into debt, their options start to run out. They become desperate, and history shows a common pattern:
First, they impose capital controls. They compel individuals and businesses to repatriate funds from abroad, or prevent them from moving new funds overseas. This is happening in several countries right now.
For example, Argentina's fascist president Cristina Fernandez just ordered oil, gas, and mining exporters to repatriate all export revenue back to Argentina. This was her very first presidential decree after winning re-election just days ago.
The second thing they'll do is direct capital into government bonds. Pension funds, central banks, commercial banks, private corporations, and even individual investors will be forced into the 'safety and security' of government debt. That means YOU.
This is also happening all over the world right now-- Hungary, Ireland, Argentina, etc.
Third, they'll inflate away the debt by conjuring more money out of thin air. Everyone holding government bonds will lose money against inflation. Again, this is also happening.
Last, they'll selectively default against politically weak bondholders. Example-- paint the Chinese out to be economic terrorists, then stiff them. It's a slippery slope delay tactic that usually results in full-blown default.
This is why international diversification is so critical. When the gates starts closing around your capital and livelihood, it's important to have taken the appropriate defensive measures IN ADVANCE.
