‘Sub Prime’ Sovereign Debt

As we touched on yesterday global retail demand for gold and silver has spiked recently on the back of the Greek saga.  Why?  Possibly because whether directly affected or not (and there are many reports of strong Greek buying) Greece and Puerto Rico are clear, real life, indicators of a broader debt born issue - again.  Gold and silver also protect your wealth from currency failure.  If Greece went back to the Drachma they would inevitably see a significant decline in purchasing power – previous examples lead to hyperinflation.  As the Russian’s saw last year, if you have gold and silver they protect your wealth as they are US spot price denominated – Russians saw their gold price nearly double in Rubles.  It’s the same for Aussies as most predict a sizeable devaluation of our dollar this and next year as economic reality sets in.  

It is, however, the threat these 2 sovereign debt default examples present to global markets that might be more instructive to purchasers of gold and silver.  It was mismanaged sub prime debt that triggered the GFC.  Ultimately unserviceable sovereign (country) debt is no different to unserviceable mortgage debt.  Greece shows us that a country can fail just as a house owner can fail.  Few would have predicted a bunch of sub prime mortgages could trigger the 2nd biggest crash in history.  Many are still not giving Greece and Puerto Rico the weight they deserve.  Let us leave you with an excerpt from the Financial Crisis Inquiry Commission on what caused the 2008/9 GFC

 "…dramatic failures of risk management at many systemically important financial institutions, [and] excessive borrowing…"

Sound familiar?