Nations of the world are drowning in debt, and a massive global avalanche of debt default is now imminent

Wednesday, January 06, 2016 by: J. D. Heyes
Tags: financial collapse, debt bomb, Mexico

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(NaturalNews) The global economy may be about ready to take a massive hit if a series of imminent crises converge in just the right – or actually just the wrong – way.

As reported by SHTFPlan.com, global debt has been steadily rising for years, and as that has happened, conditions for a debt avalanche have been created. "Once it accumulates enough mass, and momentum is not sufficient to stop its collapse, it overwhelms its host, and will come crashing down on the rest of the system, too," Mac Slavo reported for the site.

Around the world, Slavo says, there are literally hundreds of governments on the local, state and national level, including not a few businesses and private households, heavily indebted and reaching the point of no return. Already heavily in debt, many of these entities are set to default on the repayment of loans (many of which were made to keep nations afloat to begin with). When that happens, there will be a series of debt crises that will result in market chaos and a dramatic tightening of credit for nations and those in the private sector who are deemed most vulnerable.

Chain reaction of debt

Last month, fears grew that Puerto Rico was set to default on a massive loan payment – something that did not happen, but remains a possibility. On Dec. 1, Puerto Rican Gov. Alejandro Garcia Padilla told the Senate Judiciary Committee that the Caribbean island protectorate was essentially out of money, saying, "Let us be clear, we have no cash left." So without congressional action, the government there is likely to default.

The U.S. government likely won't let that happen, instead opting to burden taxpayers with another bailout, thus perpetuating the failed socialist experiment on the island that has seen its government overspend on welfare services and public pensions, leaving it about $73 billion in debt. But, as Slavo noted, Mexico is also "ready to crash and bracing for impact."

As noted further by Wolf Street in August, corporate debt is also becoming a major problem:

"In the emerging markets, private-sector debt has become a doozie: In 2014, EM non-financial corporate debt reached a record high of 83% of GDP, up from 67% in 2009. The problem is that part of this debt is denominated in a foreign currency. ...

"The countries that have seen the largest increases in non-financial corporate indebtedness are China, Brazil, and Turkey. But Mexico is not far behind. According to a new report in El Financiero, in the first half of 2015 the total debt of a sample of 50 publicly listed companies had risen 22% year-over-year.

"The main reason? The peso's decline against the dollar."

'Domino of debt bomb explosions'

The website further reported that in August, the bonds of the country's largest construction company, ICA, became the worst-performing corporate bonds in all emerging markets, and things have only gotten worse since. In early December – about the time Gov. Padilla was testifying before a Senate committee – ICA's shares fell 22 percent in a single day, following news that the company would utilize a 30-day grace period to make a $31 million interest payment that was due that week. In subsequent days, the company's shares fell even further to their lowest point in 21 years.

Financial analysts are not confident the company will be able to make its payment early in January, either – after the grace period expires.

"Do I think they're going to pay within 30 days? No," said Carlos Legaspy, a money manager at InSight Securities that holds ICA bonds due in 2017, 2021, and 2024. "The 30 days are not going to make any difference."

Slavo notes that "the real danger" is that ICA's failure begins a series of debt collapses around the globe, as weak, heavily indebted companies "create a domino of debt bomb explosions that risk taking the whole thing with it in a brilliant fiery scene of destruction."

Sources:

SHTFPlan.com

ZeroHedge.com

TheHill.com

WolfStreet.com