The Sovereign Debt Bubble Will Continue To Expand Until BANG The System ImplodesMichael Snyder, Contributor We have heard a lot about austerity over in Europe in recent years, but debt to GDP ratios continue to rise in Greece, Spain, Italy, Ireland and Portugal. In general, most economists consider a debt to GDP ratio of 100% to be a danger level, and most of the economies of the Western world have either already surpassed that level or are rapidly approaching. Of course the biggest debt offender of all in many ways is the United States. The U.S. debt to GDP ratio has risen from 66.6 percent to 103 percent since 2007, and the U.S. government accumulated more new debt during Barack Obamas first term than it did under the first 42 U.S. presidents combined. This insane sovereign debt bubble will continue to expand until a day of reckoning arrives and the system implodes. Nobody knows exactly when that moment will be reached, but without a doubt it is coming. But if you listen to the mainstream media in the United States, you would be tempted to think that this giant bubble of debt is not much of a concern at all. For example, in a recent article in the Washington Post entitled The case for deficit optimism, Ezra Klein wrote the following Heres a secret: For all the sound and fury, Washingtons actually making real progress on debt. About a decade ago, government officials were projecting that we would be swimming in gigantic government surpluses by now. Instead, we are running trillion dollar deficits. But right now there is a lot of optimism about the economy. The stock market recently hit a 5 year high and the business community is loving all of the false prosperity that all of this debt is buying us. It is not a good thing to have it going up in relation to GDP. That should be stabilized. But the debt itself is not a problem. Oh really? A debt of 16 trillion dollars is not a problem? Perhaps we should all run our finances that way. Why dont we all go out and open up 20 different credit cards, run them all up to the max, and then tell the credit card companies that we cant pay them back but that it is not a problem. The truth is that government debt is becoming a monstrous problem all over the globe. Just check out how debt to GDP ratios all over the planet have grownover the past five years United States United Kingdom France Germany Spain Ireland Portugal Italy Greece The Eurozone As A Whole Japan So how does all of this end? Well, it is going to be messy, but it is very difficult to say exactly when the system will collapse under the weight of too much debt. Some nations, such as Japan, are able to handle very high debt loads because they have a very high level of domestic saving. Up to this point, an astounding 95percent of all Japanese government bonds have been purchased domestically. But other nations collapse under the weight of government debt even before they reach a debt to GDP ratio of 100%. The following is an excerpt from a recent Congressional Research Service report It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs. When a government runs up massive amounts of debt, it is playing with fire. You can pile up mountains of government debt for a while, but eventually it catches up with you. Over the past 10 years, the U.S. national debt has grown by an average of 9.3 percent per year, but the overall U.S. economy has only grown by an average of just 1.8 percent per year. That is unsustainable by definition. There is going to be a tremendous price to pay for the debt binge that the U.S. government has indulged in over the past decade. During Barack Obamas first term, the amount of new debt accumulated by the federal government breaks down to about $50,521 for every single household in the United States. That is utter insanity. If you can believe it, we have accumulated more new government debt under Obama than we did from the inauguration of George Washington to the end of the Clinton administration. And most Americans realize that something is seriously wrong. One recent poll found that only 34 percent of all Americans believe that the country is heading in the right direction, and 60 percent of all Americans believe that the country is heading in the wrong direction. If we keep piling up so much debt, at some point a moment of great crisis will arrive. When that moment arrives, we could see havoc throughout the entire global financial system. For instance, most people dont really understand the key role that U.S. Treasuries play in the derivatives market. The following is from a recent article posted on Zero Hedge This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market. As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast. Once again, nobody knows exactly when the sovereign debt bubble will burst, but if we continue down the path that we are currently on, it will inevitably happen at some point. And according to Professor Carmen Reinhart, when this bubble does burst things could unravel very rapidly These processes are not linear, warns Prof. Reinhart. You can increase debt for a while and nothing happens. Then you hit the wall, andbang!what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big. At some point the global financial system will hit the wall that Professor Reinhart has warned about. Are you ready? This article first appeared here at the Economic Collapse Blog. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here. linkwithin_text=Related Articles: 