If there's one thing that I'm noticing around the blogosphere this morning, it is that a lot of bears are throwing in the towel. John Murphy is leaning bullish now I think, and Carl Futia has also thrown in the bear towel. They might well be right. While the sovereign debt crisis is likely to result in a major crash at some point, that debt crisis won't be about two bit players like Greece or even Italy, it will be about the US and the EU as a whole, and when the members of the Euro zone bind themselves together ever more tightly to escape these first sovereign debt problems, they are increasingly creating a situation where if they go down, they all go down together.
The key thing here is that sovereign debt levels in the US and the EU (on average), on the optimistic reading where onerous pay as you go future pension and other commitments are excluded, are reaching about 100% of GDP and are still rising fast. I've read that the tipping point at which it starts to get a lot more expensive to roll over debt is at about 120% of GDP, and by 140% you are effectively insolvent. Debt can go higher of course, Japanese debt is close to an astounding 200% of GDP, but it's hard to find a serious analyst who doesn't think that Japan is effectively insolvent, and that default there is just a matter of time.
