Guest Post: When In An Inhospitable World Filled With Sharp Barbs, It Might Be Best To Act Like A Hedgehog

BIS tried to warn us.

Rosenberg gave us a head’s up.

Ferguson and Faber sounded the alarm.

Now SocGen’s Edwards and Grice are ringing the bell.

A lot of heavy-hitters are saying that this is not just a problem in Iceland, Dubai or Greece, but the start of sovereign defaults in fiat economies world-wide.

When in an inhospitable world filled with sharp barbs, it might be best to act like a hedgehog.

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About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. zanon

    Please list a single sovereign that is having any problem paying in their own fiat currency (floating fx, non-convertible).

    Iceland, Dubai, Greece, all had foreign fx issues.

    Sovereigns need never default in their own, fully fiat currency.

    1. michael

      I read Germany’s Weimar Republic also never defaulted on their debt around 1923.
      I feel much safer now.

  2. i on the ball patriot

    Peak bullshit — Its Bear, Lehman, Fannie and Freddie in a new European suit — ‘Too Big to Fail Bombs’ are being being loaded in the EU … IMF will ultimately drop funds on Greece and Spain and in the process wack European social democracies and their middle class, and guess what? Few bucks left for the starving third world!

    This is the old fashioned vanilla greed debt trap for profit in a new form. Its a neo-con pernicious greed, much more complex, global debt trap for CONTROL …

    Hello two tier ruler and ruled world!

    Deception is the strongest political force on the planet.

  3. RW

    “A lot of heavy hitters” …is that, like, “some people say?”

    Ferguson a “heavy hitter?” If someone who’s ignorance of investing is only equaled by his ignorance of marcoeconomic theory meets that standard then “it might be best” to buy government bonds.

  4. scharfy

    Faber and crew just talking their positions, stirring up fear.

    Politicians fear monger to get welfare or warfare. Hedge-funders to make money. Slight variant, but the same game.

    As long as you’ve got your own central bank I’d say the odds of default pretty low.

    Now you might get considerably DEVALUED… but if we spread the pain out over the rest of your productive life, it won’t hurt quite as bad.

  5. bena gyerek

    i like a lot of naked capitalism posts, but this one is pathetic.

    i particularly find the linked zerohedge post totally idiotic. e.g. the view that all g7 governments are insolvent because of “off balance sheet liabilities” – namely unfunded pension liabilities. and what happens when you raise the retirement age by 5 years? oh no, far better to default on the national debt than do something as radical as raise the retirement age! duh!

    if i had enough cash to keep posting margin in the meantime, i would be writing greek cds all day long.

  6. zombie Harry Lime

    I think you need to cast a broader net. The macro theme here is collapse of a predatory kleptocracy. Happens all the time in barbaric dirt-poor hellholes, but it’s new to Americans, and awkward for their exquisite self-esteem. To cash in on your kleptocratic effondrement it helps to get yourself into the mindset of the third-world elite of your choice, live the part, find the magic if. You might want to go Eurasia-trash mafiya, put on a shiny plastic tracksuit and drink szampan. Good choice for hairy guys. Or else imagine yourself as a African child soldier made good, wear hip shades and throw comically approximate gang signs. However you do it, just think, this is your last chance to make off with your ill-gotten gains.

    Since your regime is obsessed with macro solutions and blind to micro problems like market failure, principal-agent disfunction or deficient transparency, getting rid of all your debt falls to the Fed. That means the speculator’s game is inflationary crack-the-whip (crack-the-whip here meaning not discipline but the old-time ice skating trick that catapults you with explosive oscillations.) You crack the whip using commodities, broadly defined, and leverage (you have to overcome your revulsion to it, debt’s a rationed resource again, reserved for parasitic elites.) Gold is just another commodity; industrials and agriculturals permit greatly refined timing. But no real estate – social-engineering tax tinkering will focus on trapping your capital in property investments. Equities benefit from the mother of all election cycles as the regime’s desperation peaks, pairs trading and special situations help cash in on pervasive corruption and seek rents, and for the connected few, private equity is what privatization was in Russia – that’s why all your statesmen wind up working for Carlyle.

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