Recently by Simon Black: Vast Business and Investment Opportunities in Mongolia
Ive spent the last few days at a Chinese offshore strategies symposium here in Shanghai as a guest of the conference organizer. Its been a fabulous event, full of camaraderie and relationship building, all set in one of the Pudong districts finest hotels.
But beneath the overall good vibe lies a very somber goal. There are no illusions here about whats going on in the world. No one is trying to spin a good news story about bankrupt, insolvent western nations. And, surprisingly, prominent Chinese economists were even critical of Chinas own long-term economic prospects.
The opening speaker yesterday morning railed against Chinas quantitative easing measures. As a percentage of GDP, Chinese money printers make their American and European counterparts look like pithy amateurs trillions have been conjured out of thin air, most of it ending up in the housing sector.
Apparently the Chinese didnt learn much from the US property bust; theyve made precisely the same mistakes, and its 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 Europes problems.
Heres the thing about governments going bust its 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.
Whats 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, Argentinas 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 theyll 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.