Visions of riots in Greece. Reports of widespread corruption. All of that and more last spring when Greece was facing defaults of their loans. Are Ireland, Spain, Portugal and Italy next?
Ireland Reported to Be Struggling with Debt
Having been shut out of the world bond markets Ireland is close to financial collapse. Unlike Greece they aren’t facing default but they are projected to be running out of money next spring. The other European Zone countries believe a crisis such as the one Greece had could be avoided by seeking help now. Ireland on the other hand fears losing their independent financial status and as such their ability to govern. But what would the Irish have to govern?
The Irish problem has not been reckless financial decisions and corruption, but bailing out their much-maligned banking system, which amounted to 32% of GNP this past year. Real estate prices started to peak then fall causing banks to be stuck with billions in unpaid loans. The government took over some of Ireland’s biggest banks and with them huge debts they could not afford in an effort to protect there weakening economy.
Portugal has been on the Verge of Collapse Since Last Spring
Things have been quiet in Portugal as the government has been hard at work on austerity, but the government passed an ambitious fiscal plan scaling the budget deficit back to 4.6% from a whopping 9.3 % last year. The global countries are watching to see if the Portuguese are really going to be able to make and stick with such drastic cuts.
If Ireland’s financial empire crashes then it will be like dominoes falling. Immediately the global economy will start increasing world bond yields as doors to the vault will start closing out Portugal, Spain, Italy and numerous other Latin and African nations which could lead to a world depression the likes of which we have never seen.
After the Grecian woes the International Monetary Fund (IMF) increased their reserves to one trillion dollars of which the United States pledged a good bit of that total. It would create chaos in financial systems world wide as the Euro will free fall against most leading currencies promoting devaluations world wide. Governments systems will potentially start grinding to a halt. Those trillion dollars in reserves could go quick forcing the IMF to lean on supporting nations like the U.S. to belly up with more cash.
Larger economies like the U.S. will be hurt as their bond yields spike to compete for investors followed by dropping bond prices, which will hurt pension funds, insurance companies and other large buyers of bonds.
Equities could be almost destroyed as buyers flock to large bond yields and away from large dividend stocks leaving small investors and their retirement funds dwindling away even worse then three years ago when the largest banks in our country started to fail.
From a purely investment decision cash will once again be king unless the governments keep printing more and more money to try and jump start an economy doomed to a depression like state. I am sticking with a 50% cash portfolio and will take profits at every turn to try and protect my retirement investments in case the above countries can’t get the financial help they need in the coming months.
Keep an eye on these global disasters that have been pending and in limbo to long. Make sure you are in very liquid investments. Time to be wary as the recovery as we know it will get very bumpy in the coming new year.