The Case for a First-World Debt Relief Conference

You want an outlier scenario? Here’s one: I am increasingly of the view that we will see calls for a first-world debt relief conference in 2012-2015. I’ve been saying this privately for some time, but I might as well put it out there.

The case:

  • The high levels of first-world debt around the world
  • Its likelihood of causing further collapses
  • The debt’s reciprocal and interlocking nature
  • The drag such debt represents on growth
  • The cascading effects of sovereign failures

We watch Greece’s rescue continue, while troubles cross the membrane into Spain, Portugal, and elsewhere, and the U.S. remains the largest ticking debt-bomb on the face of the planet. It is going to increasingly seem to more and more debtholders around the world time to have a discussion about what we do. (Everyone inflating their way out is a path to a second-stage collapse, but one-off haircuts solve nothing systemic.) No, my guess is that we will sometime soon see a call for a first-world debt conference — and leading the calls, of course, will be emerging markets, like China who hold so much of the debt. What a wonderful reversal.

[Graphic via NYT]