Global Debt Default Warning from Davos

The drums are beating louder and louder. Last night at one point the S&P500 was off 3.2% before a late rally to finish 1.2% down.

So far this year the S&P500 is down 9.1%, the All Ords (before an almost certain plunge today) is down 8% whereas gold is up 9.6% and silver up 7.9%.

Whilst this is all happening global financial leaders are meeting for their annual love-in at the World Economic Forum in Davos.  Yesterday the chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS), William White, had this to say:

"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,"

"Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,"

"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,"

White has credibility as he was one of the few bankers who warned about the GFC before it happened.

From the AFR:

“Mr White said stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis leaked out across east Asia and emerging markets, stoking credit bubbles and a surge in dollar-borrowing that was hard to control in a world of free capital flows.

The result is that these countries have now been drawn into the morass as well. Combined public and private debt has surged to all-time highs of 185 per cent of GDP in emerging markets and to 265 per cent of GDP in the OECD club, both up by 35 percentage points since the top of the last credit cycle in 2007. [PS Australia is one of the very worst…]

"Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too," he said.”

Quite tellingly he had this to say too:

“Debt jubilees have been going on for 5,000 years, as far back as the Sumerians."

There is one asset that over that whole 5000 years has always been there as real money, a real protection of wealth as each credit cycle ends and that is gold and silver.  Do you think this time is different?