Wednesday, February 28, 2024
Martin Hennecke
Martin Hennecke
Chief economist at The Henley Group
"Few investors and market analysts took note of the recent downgrade of France by Standard & Poor's."

Specter of default dogs West as forecasts come true

Few investors and market analysts took note of the recent downgrade of France by Standard & Poor's.

It seems that total complacency about economic realities and a firm belief in the lies of politicians and central bankers about the state of public finances has once again taken hold.

Yet those with the ability to think critically even in the face of the supposedly obvious signs of recovery should take note. The downgrade of the euro-zone's second-largest economy eerily follows the long-term road map that rating agency Standard & Poor's laid out more than eight years ago.

The chart was first published in the Financial Times on March 20, 2005, under the headline "US, Germany, France, UK face junk debt status."

S&P was able to release this outlook without causing any panic because back then, there was no financial crisis.
Also, the first expected downgrades seemed a long time away. Therefore, hardly anyone noticed.

But essentially, what S&P suggested was all leading Western nations íV France, the United States, Germany and the United Kingdom íV would be downgraded all the way to junk status, preceding their individual default. Now, if we look at the projections very carefully íV bearing in mind they were made in 2005 íV it should be noted that France was expected to be downgraded from AAA to AA+ in 2010-11. This indeed happened in 2011.

Subsequent to this, the chart showed France was going to be downgraded a second time from AA+ to AA in late 2013/early 2014.

This indeed took place earlier this month, on November 8. Accordingly, it seems the accuracy of S&P íV and the dangerous path France is on right now íV must not be underestimated.

If future ratings downgrade projections are as accurate in terms of timing as past forecasts, then France's national debt would be entering crash mode, leading to default in the not-too-distant future.

Perhaps even more interestingly, we should note that S&P's 2005 chart had projected the United States would lose its AAA rating in 2015. But this it already did in 2011.

So, the big disaster íV major Western countries going into default íV could happen sooner than the what the 2005 chart forecasts.

The road map of where we may be heading if S&P's projections continue to play out is particularly important to bear in mind right now, when we are deluged by propaganda in the popular press of an impending global economic recovery. Also, we must not pay heed to the torrent of articles about how precious metals have become risky and an useless asset class.

In fact, the massive manipulative attack on gold and silver prices that we saw earlier this year íV alleged to have been done with support from the US Federal Reserve íV may well be a sign of full-blown panic in the Western establishment.

The powers-that-be could have been seeking to discourage the public from converting their bonds and bank deposits into precious metals to shelter from the coming sovereign debt crisis storm.

China, however, appears to be in the know of these developments and has kept buying physical metal at a record pace.

Beijing has imported more than 2,000 tonnes of gold through Hong Kong in the past two years, making use of the artificially suppressed prices. A number of emerging market states have followed suit.

So, it appears likely that the West will soon be drained of physical metal supplies, as they steadily flow from west to east íV never to return.

Once that has happened and the public and the financial community at large start waking up to the scarcity of metal supplies coupled with the rising risk of a sovereign debt crisis hitting major Western nations, gold and silver prices then are likely to rebound to far higher levels than those we saw in 2011.

Other articles:
Land of the rising debt - 28/07/2014
Hong Kong property - the cheapest in the world? - 12/05/2014
Ukraine-Russia tiff: turning crisis into opportunity - 31/03/2014
Emerging markets mayhem can offer rich pickings - 10/02/2014
>> Specter of default dogs West as forecasts come true - 18/11/2013
China equities trumpeted for second glance - 21/10/2013
It ain't over till the fat ladies sing - 17/06/2013
Golden time to load up - 04/03/2013
Shale gas unlikely to wipe sheen off Russian shares - 18/02/2013
Games of distraction - 03/12/2012
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