Mark these words: Sovereign Default

Not many people are exposed to these words (ummm... ok, me at least). But this will be the catch phrase for 2010. Forget 'sub-prime'. The new lingo is sovereign default . And this 2 big words will bring the entire world down to it's knees.

I am a believer that there will be a double dip in the world recession simply because I do not believe that the current pump priming of economies globally is going to be able to pull us out of the on-going financial crisis. Apparently the world economy is on some kind of a rebound now. Green shoots sprouting everywhere. Is it? Personally I don't think so.

The Dubai fiasco had started the double dip. US$50 to $60 billion may seem like chicken feet compared to what the US government had to deal with (read: hundreds of billions). But is the Dubai case isolated? That will be the most important question.

What are the unfolding effects? For starters, we are now being told that a large portion of the Dubai debts is owned by British banks. The Brits are at the end of their wits and this will not go down well with their already very ill economy. And if the Brits get kicked, the Frenchies will get their knickers twisted. And the Germans then hammered. You get what I mean.

And amidst all this, a new form of disaster has emerged. Sovereign debt. The Greeks are, pardon my language; in deep shit. Sort of knee high. So that's quite a lot of shit. Their government is unable to repay their bonds. Sovereign bonds are government bonds which are issued and denominated in foreign currency. So upon maturity, the issuing government will have to repay the bond holders in the denominated foreign currency. If the said government is unable to purchase the said foreign currency for repayment of debt, they are screwed.

And this is what we are facing now. We in Malaysia are not getting a lot of coverage on this, yet. Just like the beginning of the sub-prime crisis in the States. We are after all frogs living under coconut shells.

Your next question will be: Greece ? So what? Not that big economy aren't they? And it is such questions which show the naivety of Malaysians. It is only in Malaysia where we 'live on our very own island'. Everyone else in the world live dependently upon one another.

The Greeks' default will pull with them their business partners and the European Union. Portugal is already on the radar right now and all is not well with Christiano-Ronaldo-land. Their credit default risk has just reached the ceiling.. Not very good signs if you ask me. So, who else are going down? One by one, other related nations will get pulled down together - and drown.

What is causing this mayhem? Budget deficit. Government pump priming their nation out of the credit crisis started by Wall Street. A budget deficit means that the nation budgeted expenditure exceeds its income. In our lay man term, spending in excess of your means. When we need to spend more than our paycheck, we have the credit card(s). For governments, they issue bonds. Get the dough now, pay in the future. The Greeks and Portuguese are in their 'future' now, and they don't have money to pay. So, that's the basics of it - at least from my understanding.

So, if this default disease proves more lethal than H1N1, guess where the virus is going to spread to? Everywhere. Including the Americans who are borrowing money from their descendants of 2098. Will this spark another round of major credit crisis when the 1st of 2 years ago is still not solved yet. The likely answer is a yes. And this time there will be no more trillion dollars printed to rescue the Americans. Not that their money printing machine is broken, they simply do not have the means to do it anymore. So, come the double dip, the Americans will perish. Millions of Americans will be living on streets or huddling up under flyovers.

And the same shit is going to hit Malaysia this time. There is not going to be any money for Najib to spend his way out this time around. PNB can't even sell a quarter of its recent RM10 billion bond. The country is already as dry as a salted fish.

And rumours have it that Singapore is high on the potential sovereign default list. Their budget deficit is also crazy ass high. This is very worrying. Everytime Singapore sneezes, we shit in our pants. We do trade with them, like, a lot. Really really a lot. Back in the Asian Financial Crisis of 1997, Thailand brought the entire South East Asia down with it. And we aren't even that economically active with them as compared to Singapore . And to make matters worse, Singapore is a mini US . Only geographically distanced. If the Americans die, the Singaporeans die. If the Singaporeans die, we die!

So folks, pray that the world does not end on 10 December 2012. Pray Nibiru comes quicker, much quicker. At least we don't have to see Najib and gang make life a living hell for us ordinary Malaysians in the coming very desperate times. Plus we know they are not smart enough to prepare Malaysia for rainy days.

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