The New York Times recently posted an interesting graphic, seen below, that depicts the intricate web of debt owed by and to the so called PIIGS, nations of Portugal, Italy, Ireland, Greece and Spain.

New York Times graphic showing the debt loads to the PIIGS

Trillions in debt in a web of transactions ~ visualized.

In examining this situation I am reminded of the notion of the ‘sugar cup’ in a small neighborhood. Where whenever someone runs short of sugar for baking they have always been able to ‘borrow’ a cup (or two or three) from a kindly neighbor, who has in turn borrowed back. This was the so-called concept of the open market power supply that got California, Nevada & Oregon into so much trouble back about a decade ago. The idea that there would be surplus power provided by the other regions that they could then ‘borrow’ it and rates would somehow remain stable. What happens when everyone runs out of sugar at the same time?

What happens when the states all decide to ‘borrow’ and not build power generation capacity, causing an extreme shortage for all of them at the same time?

What happens when the cost of borrowing money, like it appears to have begun, goes up and you have loads of outstanding debt to your neighbors and none of them have ‘spare’ cash to loan you?

Rates go out of control, that is what happens.

The good will of the sugar cup neighborhood gets trashed, the power rates rise exponentially and brown-outs or rolling black-outs start being ordered.

When the time comes, and it will, the lenders will all demand great HUGE concessions from these ‘sovereign’ governments, then we shall truly see how ‘sovereign’ they really are…

What does all this mean to your investment strategies? Include GOLD and SILVER or be prepared to watch all your ‘holdings’ value vanish as the debt bomb explodes. Perhaps better said, implodes, and like a black hole it will drag in many other asset classes.

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