The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.”  Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment.  Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week.   What is Lagarde going to do about the debt problem?  A CNBC story reported, “She warned that both advanced and emerging economies faced key economic challenges, and that governments must ‘act now’ to stop further contagion.  ‘Policymakers should stand ready, as needed, to take more action to support the recovery, including through unconventional measures,’ Lagarde said.”  (Click here to read the complete CNBC story.)  Lagarde is surely talking about revving up the global printing presses for more bailouts.

Meanwhile, the Germans are talking about letting countries like Greece go bankrupt.  Another CNBC story yesterday said, “Even senior figures in Merkel’s conservative Christian Democrats (CDU) are leaving open the possibility of default.  ‘The way things are looking, you can no longer rule out a possible Greek restructuring,’ CDU budget expert Norbert Barthle told Reuters, when asked about a default or euro zone exit.”  (Click here for more on this CNBC story.)  So which is it?  Will it be bailout or default?  Who knows, maybe a little of both before it is all over.

A post on Zerohedge.com Friday may give the answer.  It reported, “Wondering what is next for Europe? Don’t be. With Jurgen Stark, aka the last real hawk at the ECB, gone, here comes “the printing.” SocGen’s (Societe Generale) Dylan Grice explains.  From SocGen:  Suppose that Italy or Spain get caught up in the whirlwind like Greece, Ireland and Portugal, as threatened to happen last month. Maybe the Italian political situation deteriorates, maybe Ireland defaults, maybe Greece will go revolutionary, or maybe an ill-advised wayward comment from an influential European politician will spook markets and send them into renewed tailspin. We don’t know which of these will happen, if any. All we know is that these are some of the many plausible triggers for a further deterioration in this fragile situation.”  (Click here for the complete post from Zerohedge.com.)

That “fragile situation” would mean a panic set off by an impending debt implosion, but SocGen’s Grice says the powers will not allow it to happen.  In the end, there will be a burst of money printing to stave off insolvency that has already infected many European banks.

Then, there is the absurd idea that Europe and America, for that matter, can “grow” their way out of the trillions of dollars of debt the western world has racked up.  An Associated Press story on Friday said, “The argument put forth by (Tim) Geithner and others is that the best deficit-reducer is growth: When the economy is humming, it offsets spending and drives down both the size and the proportion of deficits. Rather than trying to scrimp their way back to prosperity, world economies need to spend money to make money.”    ;(Click here for the complete AP story.)   The “spending” is code for printing money out of thin air, and “growth” is really code for inflation.

It looks like European banks will need some cash long before they can “grow” their way out of the tremendous debt they are in.  Just last week, Deutsche Bank CEO Josef Ackermann said, “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”  There are twenty Federal Reserve primary dealers of Treasury debt around the planet.  Do you think the Fed will let a single one fail?

Economist John Williams at Shadowstats.com says for the Federal Reserve “systemic failure is not an option.”  The financial crisis in 2008 caused the Fed to dump $16 trillion into the world economy.  Five trillion dollars was pumped into foreign banks alone to keep them afloat.  In his latest report, Williams said, “The U.S. and global financial markets remain extraordinarily volatile and unstable, with systemic instabilities offering the potential, again, of systemic failure.  Following the collapse of Lehman in 2008, the U.S. Treasury and the Federal Reserve committed to preventing a systemic collapse at any cost.  They created and spent, loaned or guaranteed whatever money was needed to forestall systemic failure, kicking the proverbial can down the road.  Most of the actions taken then and since, however, were stopgap measures; little was done to address the systemic and economic crises fundamentally.  At present, the system has moved enough further along the road that the can likely will be kicked again.  Now, though, the road ahead drops off a cliff, well within current kicking distance.”

I think the “kicking distance” and the “cliff” are somewhere between now and early 2013.

http://usawatchdog.com/dangerous-new-phase-debt-bubble/