It was inevitable. The US is trying to raise hundreds of billions of dollars to finance its growing deficit. The UK and many EU nations are doing the same. Japan is in the capital markets. A number of smaller nations which have even more acute problems than the richest nations do are trying to raise money of their own.
There are only so many buyers of government debt. China may be first among them, but its appetite is not infinite. As the recession wears on, sovereign debt will look more risky due to rising national deficits. Private debt investors will ask for higher yields to take on that risk. To much demand for money will also push up coupons.
National treasuries and central banks are facing a problem, which while it is of their own making, they cannot solve. They are going to have to pay higher and higher interest rates for capital and that is going to leave less and less money for actually funding stimulus programs while more cash has to go to servicing the new debt along with the old.
The US will probably be able to raise all of the money it needs although the cost is becoming more dear. Smaller nations may not be so lucky. As countries in place such as Eastern Europe face financial trouble, an inability to raise capital increases the chances that they will default on exiting debt. The curtails their chances of getting any new money at all. The national debt crisis may have started in Iceland, but it did not end there.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks