Professor Elam

Sunday Feb 7 2010

Jeremy Warner in the UK Telegram suggests the PIGS are causing investors to question the value of sovereign debt. This article was posted on BB by an alert student in Intermed ACCT, it is spot on and I thought should be shared on the blog. First business debt was questioned and markets plunged as hedge funds met margin calls with liquidation of securities. Then second governments borrowed more to  'stimulate' their economies. Not surprisingly all that did was add to existing debt. The slow economy has not tempted any one to start a business and unemployment has soared everywhere. Now the PIGS are on credit watch and downgrade. The so called bailout of Dubai was actually another debt increase, yes Dubai issued bonds to its lender. As Warner says, slower economies bring in less taxes, this is why even school districts in San Antonio, as we have noted, are cutting back. And so the down spiral continues, more debt, more interest payments, less tax revenue, services are cut back, expectations are lowered, spending by consumers falls, sales tax revenues fall, get the picture?