On bond market deflation, financial default and currency devaluations

1. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
It would be a dark time worldwide.
The clock is ticking as the Economist would say... Every second, it seems, someone in the world takes on
more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times
Square in New York, where the American public shortfall is revealed. Our clock shows the global figure
for all (or almost all) government debts in dollar terms.
Does it matter? After all, world governments owe the money to their own citizens, not to the Martians.
But the rising total is important for two reasons. First, when debt rises faster than economic output (as it
has been doing in recent years), higher government debt implies more state interference in the economy
and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a
recurring popularity test for individual governments, rather as reality TV show contestants face a public
phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be
plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal
crisis, and the bigger the economic impact such crises will have.
Choice between Deflation (contraction ) or Devaluation ;
Reflation : As the world looks to “reflate” their economies, fiat currencies (dollar, euro etc) are
being deliberately devalued by governments worldwide as a way to get out from massive debt
burdens that were run up during “credit bubble” and continue at ever higher levels with
“stimulus” plans. The U.S. very much wants and needs a weaker dollar and low interest rates as
deficits and unemployment continue to soar. Fiat currencies will likely continue to be aggressively
devalued over the next decade.
Take a Guess At the World’s Networth in bonds, currencies, debt, emerging markets, financial
education, foreign investment, forex, government, international economy, money supply, networth, world
order, world reserve currency.....The entire world officially owes itself more money than it can
produce in the form of equity assets. Of course, the calculation might be meaningless, since the
numbers are an aggregate of the nations involved, and it doesn’t make sense to imagine the world
not being able to pay itself back.But it’s still a thought-provoking state of affairs.
According to a recent report in the Financial Post on the precarious pressure-cooker that is the
current bond market, total world debt in the form of bonds is equivalent to about $82 trillion
dollars USD. The number nearly tripled since 2001 (when it was only $33 trillion U.S.).
2012 public/sovereign/govt.debt levels in Us Dollar from The Economist
Intelligence Unit
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Shamik Bhose
sbhose@microsec.in ; shamikbhose@yahoo.com

2. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
Compare total debt with total assets: the total value of world equity markets amount to only $44 trillion
dollars in USD equivalent. I’m not too sure what exactly this indicates, other than, perhaps, the amount of
inflation ready to leak into the global system. All these bonds are so much money “printed.” Most of it
belongs to the governments like Spain, Ireland, Greece and United States who are now also ready
apparently to stand behind insolvent banks, as we all know
The world thus has a negative net worth of about -$38 trillion measured in USD..as
Sovereign republics and democratically elected politicians bail out bankers who loaned
money to non working people to buy houses and also non working non accountable
governments and corporations to build those societies and the houses.. giving a new
twisted meaning to the old phrase, “ as safe as a house” .
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Shamik Bhose
sbhose@microsec.in ; shamikbhose@yahoo.com

3. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
As the Economist reports “ headlines are all about sovereign debt at the moment. But that is only part of
the problem. Debt has risen across the economy, from consumers on credit cards, though industrial
companies borrowing for expansion and financial companies using debt to buy risky assets.The
interactive graphic above shows the overall debt levels for a wide range of countries, based on data
supplied by the McKinsey Global Institute.
In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this
map) found the limit in practice when they hit eight-to-ten times GDP. Total world Sovereign debt
is about 46.4 trillion dollars basis 2012 with another 36 trillion private sector debt worldwide...........
We<Economist> have also updated a sovereign debt table we published in February, ranking countries in
terms of their primary budget balance, debt-to-GDP ratios plus the relationship between the yield on their
debt and economic growth (if the former is larger than the latter, the debt burden is getting steadily
worse). Spain has now taken over from Greece as the country in the worst position. Here’s the table:
Shamik Bhose
sbhose@microsec.in ; shamikbhose@yahoo.com

4. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
2011 Debt Bubble: We’re in a Dangerous New Phase – Here’s Why
A CNBC story reported, Christina Lagarde the boss of IMF is surely talking about revving up the global
printing presses for more bailouts. “She warned that both advanced and emerging economies faced key
economic challenges, and that governments must ‘act now’ to stop further contagion. ‘Policymakers
should stand ready, as needed, to take more action to support the recovery, including through
unconventional measures,’ Lagarde said.”
Meanwhile, the Germans are talking about letting countries like Greece go bankrupt. Another CNBC
story yesterday said, “Even senior figures in Merkel’s conservative Christian Democrats (CDU) are
leaving open the possibility of default. ‘The way things are looking, you can no longer rule out a possible
Greek restructuring,’ CDU budget expert Norbert Barthle told Reuters, when asked about a default or
euro zone exit.”
So which is it? Will it be bailout or default? Who knows, maybe a little of both before it is all over.
“Wondering what is next for Europe? Don’t be. With Jurgen Stark, aka the last real hawk at the ECB,
gone, here comes “the printing.” SocGen’s (Societe Generale) Dylan Grice explains. Suppose that Italy or
Spain get caught up in the whirlwind like Greece, Ireland and Portugal, as threatened to happen last
month. Maybe the Italian political situation deteriorates, maybe Ireland defaults, maybe Greece will go
revolutionary, or maybe an ill-advised wayward comment from an influential European politician will
spook markets and send them into renewed tailspin. We don’t know which of these will happen, if any.
All we know is that these are some of the many plausible triggers for a further deterioration in this fragile
situation.”
That “fragile situation” would mean a panic set off by an impending debt implosion, but SocGen’s Grice
says the powers will not allow it to happen. In the end, there will be a burst of money printing to stave off
insolvency that has already infected many European banks.Then, there is the absurd idea that Europe and
America, for that matter, can “grow” their way out of the trillions of dollars of debt the western world has
racked up. An Associated Press story on Friday said,
“The argument put forth by (Tim) Geithner and others is that the best deficit-reducer is growth: When the
economy is humming, it offsets spending and drives down both the size and the proportion of deficits.
Rather than trying to scrimp their way back to prosperity, world economies need to spend money to make
money.”
The “spending” is code for printing money out of thin air, and “growth” is really code for inflation.
It looks like European banks will need some cash long before they can “grow” their way out of the
tremendous debt they are in. Just last week, Deutsche Bank CEO Josef Ackermann said, “It is an open
secret that numerous European banks would not survive having to revalue sovereign debt held on the
banking book at market levels.”
There are twenty Federal Reserve primary dealers of Treasury debt around the planet. Do you think the
Fed will let a single one fail?
Economist John Williams at Shadowstats.com says for the Federal Reserve “systemic failure is not
an option.” The financial crisis in 2008 caused the Fed to dump $16 trillion into the world
Shamik Bhose
sbhose@microsec.in ; shamikbhose@yahoo.com

5. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
economy. Five trillion dollars was pumped into foreign banks alone to keep them afloat. In his
latest report, Williams said,
“The U.S. and global financial markets remain extraordinarily volatile and unstable, with systemic
instabilities offering the potential, again, of systemic failure. Following the collapse of Lehman in 2008,
the U.S. Treasury and the Federal Reserve committed to preventing a systemic collapse at any cost. They
created and spent, loaned or guaranteed whatever money was needed to forestall systemic failure, kicking
the proverbial can down the road. Most of the actions taken then and since, however, were stopgap
measures; little was done to address the systemic and economic crises fundamentally. At present, the
system has moved enough further along the road that the can likely will be kicked again. Now, though,
the road ahead drops off a cliff, well within current kicking distance.”
I think the “kicking distance” and the “cliff” are somewhere between now and early 2013.
2012 and the US Dollar Collapse
I came to the conclusion several years ago that it was just a matter of time before the world realized
that the relative functionality of the U.S. dollar was about – to collapse – and that this time
happened to coincide with that fateful date all the prophecies are going crazy about – 2012!
So Chris Laird goes on to say, in part:..” I find this coincidence remarkable because, were the USD to
actually collapse, just think of the many economic and political disasters that would indeed unfold. The
U.S. economy would stop dead for a period of time and the rest of the world, hitherto dependent on the
old industrial/consumer economic model, would have to find a new economic paradigm to plan their
economies.
A USD collapse means the entire structure of the world economy would collapse for a period of time,
with a collapsed supply chain, among other things. The world would also go through cataclysms
politically during that period. That usually leads to massive wars, starvation and mass homelessness
around the world. Interesting. That’s the same stuff being prophesied in many of the numerous 2012
prophecies of various major religions! That is quite the coincidence. The demise of the USD will collapse
the entire world economy and lead to collapsed policies, and then a massive world war “.
Of course, some people cringe at an analyst such as myself talking about ‘religious bunkum prophecies’?
How can I combine prophecies with analytical methods? Well, for one thing, I have a thinking paradigm
where ‘if it works, it must be true, don’t leave out weird things in analysis, insisting only on some
calculation based prediction’. The trouble with being analytical all the time is that there are times, where
chaos enters the picture and everything changes. Chaos, by definition, is not predictable…
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Shamik Bhose
sbhose@microsec.in ; shamikbhose@yahoo.com

6. Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
What Would Happen in a USD Collapse?
• The U.S. and Western economies would all face insolvency simultaneously, with the U.S. first in
line.
• The entire Western industrial/consumer/credit economy would fall apart so fast it would make
your head spin. The supply chain would stop and stores would empty quickly.
• The USD would fall over 50% in one week’s time and then temporarily stabilize before its final
last gasp…
• Worldwide currency panic would set in paralyzing what’s left of the world economy
which means the ‘emerging markets’ would stop dead too.
• China would have a revolution, or go into military mode, which would be even worse.
• A one-world currency would be demanded and implemented.
• Asia would fare fare horribly…If Western consumerism goes away, then the entire foundation of
the Asia macro economy would instantly crash and stop cold. Do you remember what happened
that fateful last quarter of 2008, after the Lehman debacle, and the world banking system almost
collapsed en masse? Exports from China and Japan for example collapsed over 30%! Don’t think
economic demand cannot stop on a dime, because we already had one very scary case of this in
2008. So, all the pundits aside, Asia would get killed too economically. The big question is, could
they successfully adapt to a new economic paradigm before they have their own revolutions and a
change of guard ?
Shamik Bhose
Executive Director
Commodity & Currency & Interest rate futures Markets
Microsec Commerze Limited
Www.microsec.in ; www.commoditylive.in
Phones 009133-30512100 / 30512139 -40
Fax 009133 -30512020
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Shamik Bhose
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