Economic Policy: A Short Guidance Note On The Emerging Global Economy In 2012

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Geopolitical Context

Regime change in Syria, along the lines of Libya, working together with the Arab League

Israeli talks with Iran facilitated by P5 + 1 in Vienna, Austria

Decisive North Atlantic Treaty Organization (NATO)-ending to the Afghan war from now through 2014.


Given the justified anxiety in the financial markets about the restructuring of Greek debt, at Transformations we anticipate the following policies and outcomes in the major G20 countries to take hold:

National Debt Defaults

All G20 countries with existing national debt levels greater than 150% of gross domestic product (GDP) will most likely default without any attempts by their governments to restructure their debt

What Financial Institutions Can Expect From G20 Governments

All private financial market investors can expect to lose all their bond investments in the defaulting countries

There will be no bailouts of financial institutions to mitigate expectations of future moral hazard for both lenders to governments and governments

Expected G20 Government Biases

Maintenance of extraordinarily low central bank interest rates (near-zero) through end-2014 in all defaulting countries. Central banks can be expected to buy back bad government debt in exchange for near-zero rate of money supply.

No new debt issuance from these countries is expected.

Fiscal authorities and legislatures are expected to commit their governments to government restructuring plans phased-in over the short, medium and long terms to achieve fiscal time consistency.

What Financial Institutions Must Do

Sell their government bond holdings to shift their portfolios to money markets, commodities and other real sector investments

Recommended Countries For Investment

United States, Germany (and Northern Europe), China, India, Russia, Mexico, Brazil (and Latin America), Canada, Australia, South Africa

Most Expected Investor Losses By Country/Region

Southern Europe, Japan


About Chandrashekar (Chandra) Tamirisa
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