Wednesday, September 19, 2012

Major Insider: The Vast Majority of Global Debt Will Be Defaulted On

As I have mentioned many times before, Philippa Malmgren is an insider's insider. She was Special Assistant to the President for Economic Policy on the National Economic Council. She was also a member of the President's Working Group on Financial Markets, aka, the Plunge Protection Team. Her client list includes every elite corporate firm in the world (Take a minute to look at the list, its mind boggling, the list is here.). You don't get much more insider than this.

When she speaks, it makes sense to pay attention. Most recently she spoke at the the Irish Funds Industry Association’s 2012 Annual Global Funds Conference. International Adviser reports on what she said:
The vast majority of debt in today’s world will be defaulted on, according to Philippa Malmgren, president and founder of London based Principalis Asset Management.
Speaking at the Irish Funds Industry Association’s 2012 Annual Global Funds Conference 2012 in Dublin yesterday, Malmgren, who, among many other roles, has served as a financial markets adviser in the White House, explained that there were a number of ways in which governments are likely to default over the next decade. 
“When I look around the world, the magnitude of the debt problem is so great that the vast majority of the debt will be defaulted upon,” said Malmgren, who reiterated this point for emphasis.
“What is important is to understand that there are many ways in which you can default.”
Malmgren explained that there are in fact five likely ways for a government to default on its debt.
“Number one, the state can just wake up and tell you they are never going to pay you back. That is called an Argentine style default – we haven’t really seen that and I don’t think we’re going to.
“The second one we have definitely seen and it is when the state wakes up and says, you know we cannot we meet the promises made, we cannot meet the obligations – yes we are going to pay you back but a little bit less – that is called a haircut and that is what we have seen in Greece. Usually when they do it once, you know you are going to get it multiple times.” 
The doctor, who also interestingly has a certificate from the 101st Airborne Division’ Air Assault School, said the third option is austerity – something which has been witnessed already in many corners of the globe, although she adds that there is “a human limit to how much austerity people can withstand”. 
The penultimate defalt option offered by Malmgren is inflation – something she notes is often denied by governments right up until its undeniable existence. The last option is devaluation, an option many governments would like to have, but one unattainable when investors are fleeing problems elsewhere.
Laying down the gauntlet for the watching fund industry, Malmgren added: “A principle focus for the asset management industry over the next decade is going to be ‘arbitraging’ the mixture of defalts because there will be different governmnt choices in different parts of the world.”


  1. If John T. Harvey doesn't want to listen to Gary North maybe he'll listen to this lady and retract his idiotic Forbes article.

  2. Is THIS why the Fed recently announced open ended QE?

  3. You don't have to be some skank who sucked economic council kool aid to know that 139 trillion in debt is 90% over its GDP.

    Anytime a country hits the 90% debt to GDP levels their currency is revalued (read the MFers default).

  4. The first order of business is to 'socialize losses,' transfer the mess from banks and other connected interests that got into hot water onto public balance sheets. This kicked off in the U.S. in 2008, and is happening in Europe. Next will come some form (likely a combination) of what Ms. Malmgren brings to light. Those that got bailed out by the public sector will seek to capitalize on the final takedown of the public.

    This item suggests the transfer to the public sector in Europe is in high gear: "‘Backdoor Bailout’ By taking over the financing of weak banks, the ECB is in effect bailing out their creditors in the core [...]. If Irish or Spanish lenders burdened with losses from their nations’ housing busts were allowed to fail, German and French banks would lose money on loans to financial institutions in Europe’s periphery. The ECB’s latest plan to buy the sovereign bonds of some countries will continue the trend of bailing out German and French banks. “The leaders of the core countries won’t let the periphery countries write down their debt because then they’d have to capitalize their own banks losing money from those investments,” “This is a good backdoor bailout of their banks, but it still doesn’t solve the solvency issue of Spain or Italy.”
    The rescue shifts default risk from private shareholders of core banks to the ECB and, in effect, to euro-area taxpayers." (

  5. Like Ron Paul said earlier this year, the Fed can simply create money on to its' balance sheet. What prevents it from trading a dollar bill for a bond/treasury? Nothing. You used to hold a bond, now you hold green slips of paper. Are you any richer? Are you better off? No, you're just the same. The trick is what will you do with that money? And that's the balancing part that this QE is designed to do. Remove debt from the system (deflation), replace with green slips of paper (inflation), so as to maintain prices. We'll wake up some day and see the Fed has $20 trillion on its books. And we'll say pfbt to that since it is just numbers that nobody understands nor has any impact to anyone since it was just created out of thin air and sits there doing nothing. (Assuming the green slips of paper it was traded for don't make gas $10 / gallon.)

  6. "The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up."

  7. It's out of the question that governments are able to inflate their debts away through inflation. Deflation and Defaults WILL be MUCH more powerful than government's attempts to (hyper-)inflate.

    But even then (hyper-)inflation is a political choice. But it only can happen when A LOT OF credit/debt has been defaulted upon.

  8. The FED is the #1 enemy of the AMER. people. This white collar criminal banking cartel has raped the public and transfered the money to the money center banks to buy Gov. bonds Thereby leaving the public with the liabilities. Congress is in on this scam and so is your congressman. All of these criminals thinks the public doesn't get it but, be sure The Amer. Peoples Tribunal is taking names.

    1. Do you know the meaning of the word "rape"?

    2. Are you questioning whether it was a legitimate rape or not?

  9. The US will hold on as long as it can, and soak up as much opportunity to keep selling debt as Europe and Japan start to crumble.