Will there be a mad dash in 2009 for sovereign debt?
2009 is set to be a difficult year across most countries the world over. With slowing demand, many countries are now experiencing economic declines, rising unemployment, and stagnant wages. This is resulting in further slowed demand, and further disinflation.
To get out of this bind, many countries are opting for massive fiscal stimulus, to offset falling or non-existent private demand. This fiscal stimulus is being contemplated at a time when tax revenues are falling, and other demands on government money are coming from the:
- need to guarantee private assets, liabilities, and income
- need to bail out failing local companies or industries
- need to strengthen public transfers and welfare programs
- need to take over crucial but bankrupt financial institutions
- need to contain inflation, deflation, or possibly, both simultaneously.
Most nations have to undertake a similar program or another around these goals, mostly because of an escalating need to match each others’ efforts. So with real income creation becoming more and more scarce, where will these nations get their funding?
Who will be the lender of last resort, and if there will be one, where will his money come from? What currency will it be denominated? (Demand for it will increase).