The capital well is running dry and some economies could wither on the vine unless more money is forthcoming, says Ambrose Evans-Pritchard.
"We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, U.S.-European bank bailouts, and ballooning deficits almost everywhere,” Evans-Pritchard writes in the Telegraph.
Without it, a clutch of countries won’t be able to roll over their debts at a bearable cost.
“Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default,” he says.
U.S. hedge fund Hayman Advisers is betting on the biggest wave of state bankruptcies and restructurings since 1934, Evans-Pritchard reports.
Most of the worst cases are in Europe, where banks have written down only 17 percent of their losses compared to American banks, which have written down approximately half.
"We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with, Hayman’s Kyle Bass told Evans-Pritchard.
“The results are shocking."
Exports to Europe and Asia are "unlikely to provide much support for domestic production going forward," Federal Reserve Governor Donald Kohn said in a speech earlier this week, adding that the global economy had yet to hit bottom.
In the three years preceding the current financial crisis, exports were responsible for 47 percent of U.S. economic growth.