> For Global Collapse
> By Ambrose Evans-Pritchard
> 11-18-9
>
>
>
> Explosion of debt: Japan's public debt could reach as much as 270pc
> of GDP in the next two years. A bullet train is pictured speeding past Mount
> Fuji in Fuji city, west of Tokyo Photo: Reuters
>
>
> In a report entitled "Worst-case debt scenario", the bank's asset
> team said state rescue packages over the last year have merely transferred
> private liabilities onto sagging sovereign shoulders, creating a fresh set
> of problems.
>
> Overall debt is still far too high in almost all rich economies as a
> share of GDP (350pc in the US), whether public or private. It must be
> reduced by the hard slog of "deleveraging"
>
> "As yet, nobody can say with any certainty whether we have in fact
> escaped the prospect of a global economic collapse," said the 68-page
> report, headed by asset chief Daniel Fermon. It is an exploration of the
> dangers, not a forecast.
>
> Under the French bank's "Bear Case" scenario, the dollar would slide
> further and global equities would retest the March lows. Property prices
> would tumble again. Oil would fall back to $50 in 2010.
>
> Governments have already shot their fiscal bolts. Even without fresh
> spending, public debt would explode within two years to 105pc of GDP in the
> UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state
> debt would reach $45 trillion, up two-and-a-half times in a decade.
>
> (UK figures look low because debt started from a low base. Mr Ferman
> said the UK would converge with Europe at 130pc of GDP by 2015 under the
> bear case).
>
> The underlying debt burden is greater than it was after the Second
> World War, when nominal levels looked similar. Ageing populations will make
> it harder to erode debt through growth. "High public debt looks entirely
> unsustainable in the long run. We have almost reached a point of no return
> for government debt," it said.
>
> Inflating debt away might be seen by some governments as a lesser of
> evils.
>
> If so, gold would go "up, and up, and up" as the only safe haven
> from fiat paper money. Private debt is also crippling. Even if the US
> savings rate stabilises at 7pc, and all of it is used to pay down debt, it
> will still take nine years for households to reduce debt/income ratios to
> the safe levels of the 1980s.
>
> The bank said the current crisis displays "compelling similarities"
> with Japan during its Lost Decade (or two), with a big difference: Japan was
> able to stay afloat by exporting into a robust global economy and by letting
> the yen fall. It is not possible for half the world to pursue this strategy
> at the same time.
>
> SocGen advises bears to sell the dollar and to "short" cyclical
> equities such as technology, auto, and travel to avoid being caught in the
> "inherent deflationary spiral". Emerging markets would not be spared.
> Paradoxically, they are more leveraged to the US growth than Wall Street
> itself. Farm commodities would hold up well, led by sugar.
>
> Mr Fermon said junk bonds would lose 31pc of their value in 2010
> alone. However, sovereign bonds would "generate turbo-charged returns"
> mimicking the secular slide in yields seen in Japan as the slump ground on.
> At one point Japan's 10-year yield dropped to 0.40pc. The Fed would hold
> down yields by purchasing more bonds. The European Central Bank would do
> less, for political reasons.
>
> SocGen's case for buying sovereign bonds is controversial. A number
> of funds doubt whether the Japan scenario will be repeated, not least
> because Tokyo itself may be on the cusp of a debt compound crisis.
>
> Mr Fermon said his report had electrified clients on both sides of
> the Atlantic. "Everybody wants to know what the impact will be. A lot of
> hedge funds and bankers are worried," he said.
>
> http://www.telegrap
> Generale-tells-
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