Still in troubled waters...

The sheer scale of deficit for a growing number of Euro zone members makes it almost impossible for them to escape the debt trap without going through an eventual restructuring. This is despite the 750 billion Euro collateral put aside for those that may need to tap into it, which in reality serves as a temporary "band aid" to buy some additional time. The governments should not expect to be able to resolve their debt woes by simply becoming more frugal with their spending as a tightening of the belt will have the dangerous side effect of weakening consumption at a time when its needed most. In fact, it is not far fetched to think that belt tightening at this stage could trigger a protracted recession/depression. The G20 summit conclusions are therefore very worrying given that the consensus worry seems to be the risk of a surge in inflation which would mean that they are attaching less importance than would be warranted to the debt driven recession.

As the graph on Greek debt CDS spreads above shows, the problem is far from being resolved, and, in some ways may actually be getting worse.

Seeking growth...

It is hard enough to find investments that can provide capital gains, let alone on a continuous basis, as a growing base of capital continues to chase after limited resources, compressing future expected returns. Although this is an observation that can be generalized, there is growing evidence that emerging economies are in a far more attractive situation both structurally and politically. As property rights in developing nations continue to evolve, so does the wealth and sophistication of its inhabitants which reinforces the economic strength of the countries involved. The future world engine of growth or demand is increasingly coming from emerging economies, in stark contrast to the past when most if not all demand came from western nations. Probably the most damning evidence in favor of emerging markets comes from recent trends in debt to GDP. The graph above says it all, the level of debt in developed markets have exploded. If we combine this with the increasingly ageing populations of the countries involved, the future doesn't bode well at all for developed markets.