44 caliber persuasion

Which Countries Will Be Forced To Bail Out The Developed World

by Keith Weiner

Update: literally seconds after this article was posted, we receive news that the IMF will seek Saudi contribution to the European bailout fund. There you have it - you enjoy that implicit US protection Saudi emirs? It is about to cost you.

While it is best to pray that NASA will find some very rich and not so intelligent life on Mars so it can bail out the world as it sinks deeper and deeper into a untenable debt hole (which somehow can be "filled" only by issuing more debt at least according to tenured economists at ivy league institutions), a strategy of planning for a realistic outcome may not be a bad idea. The question then is who in the world has some/any spare leverage capacity to incur even more debt and use the proceeds to fund a Eurozone-American-Chinese collapse. Enter the Economist's "wiggle-room index." The publication, best known for recently introducing the "shoe thrower index" (remember the Arab Spring and how Fed induced runaway inflation generated a "democratic" revolution across MENA?) has
compiled a list of those developing world countries which still have capacity to provide credible global bailout capital (in fiat form of course - after all that is the only thing that the Ponzi understands) or as the Economist says, the "emerging economies that have the most monetary and fiscal firepower." So if you are on this list (ahem China, Indonesia and Saudi Arabia) - our condolences - you are about to be dragged into the epic slow-motion ongoing collapse of the developed world, kicking and screaming, with some 44 caliber persuasion if needed, but you will be there, before it all falls apart. The time to repay all favors to Uncle Sam is coming.


the Economist's commentary:

IF THE euro-area debt crisis worsens, it will drag down growth in emerging economies. The good news is that whereas most developed countries have little or no room to cut interest rates or to increase public borrowing, emerging markets as a group still have lots of monetary and fiscal firepower. This chart, based on an analysis by The Economist, ranks 27 emerging economies according to their policy wiggle-room.

We used five indicators to assess each country’s ability to ease monetary policy: inflation, excess credit (the growth in bank lending minus the growth in nominal GDP), real interest rates, currency movements and current-account balances.

Each country was graded on the five indicators, and the scores were then summed to produce an overall measure of monetary manoeuvrability. Next we devised a fiscal-flexibility index, combining government debt and the budget deficit.

The average of the monetary and fiscal measures produces our overall “wiggle-room index”. Countries are coloured in the chart according to our assessment of their ability to ease policy: “green” means it is safe to let out the throttle, and “red” means the brakes need to stay on. It suggests that China, Indonesia and Saudi Arabia have the greatest capacity to use monetary and fiscal policies to support growth. Chile, Peru, Russia, Singapore and South Korea also get the green light. At the other extreme, Egypt, India and Poland have the least room for a stimulus. Argentina, Brazil, Hungary, Pakistan Turkey and Vietnam are also in the red zone.

For those who don't want to go all the way to the last step, and are more curious who will pick up just the Euro tab, between the IMF and the Eurozone, here is an analysis from Reuters showing just that. Of note is that should Germany digs its heels into the mud and say "nichts mehr", then it will be up to the IMF to rescue Europe. To the tune of 61%. Which means you, America.