This chart is truly scary. I just finished reading “The Big Short” by Michael Lewis and after having my eyes opened WIDE by that tale of insanity (if you haven’t read that yet, I highly recommend it, lots of “light-bulb moments” in there for me), this really chills me to the core.
CDR Salamander hits the nail right on the head in his blog post - You can see exactly what happened in 2006 and 2007 then through 2008 when all those sub-prime mortgages exploded and how the overall amount of AAA rated securities went down accordingly (although they never should have been high in the first place if the ratings agencies were doing their job). Remember, AAA means essentially “no risk”. Um, yeah, right. Now look at the spike back up in 2009 - and then look very closely at what the majority of that money is in. Sovereign Debt.
So the next bubble isn’t the internet or the housing market or anything else in the “commercial” sector - it’s actual countries. And that bubble bursting is really what we’re seeing across Europe right now - Ireland, Greece, Portugal, Spain, Italy, and so on and so on. Just watch some of the riots happening in Greece due to the new “austerity measures” to catch a glimpse of what happens when a government leverages itself into oblivion and then tries to dig itself out. Living over on this side of the pond gives you a bit of a different perspective (closer, and a little more nerve wracking), so I watch what our bonehead government is doing right now with genuine awe - how we can risk getting into the same boat as these countries simply astounds me. I’m sure the geniuses at the ratings agencies are already scrambling to figure out how to rate US debt if they don’t figure this out, and it’s probably not going to be good. We truly live in strange times….