MAY 29, 2018
As Italian bond yields soar, will this be what triggers a broader European market crash? Italy’s problems are very directly the problems of all other euro-denominated countries. Germans will view this market upset with little surprise, their patience tested once again as a eurozone economic weak sister sees signs of panic.
The remedy for more debt is not more debt. But if the Italian crisis escalates, where do you think the ECB will turn for short-term relief? There is no untapped reserve of stored value. There’s only more of the same.
I recently wrote about a looming credit crisis that’s stemming from high-yield junk bonds. The crisis itself will have massive consequences for investors. But that’s not the worst part.
The crisis will create a domino effect and trigger global financial contagion, which I usually refer to as "The Great Reset."
The collapse of high-yield bonds will hit stocks and bonds. Rising defaults will force banks to reduce their lending exposure, drying up capital for previously creditworthy businesses.
This will put pressure on earnings and reduce economic activity. A recession will follow.
This will not be just a U.S. headache, either. It will surely spill over into Europe (and may even start there) and then into the rest of the world. The U.S. and/or European recession will become a global recession, as happened in 2008.
ORIGINAL SOURCE: The 2020s Might Be The Worst Decade In U.S. History by John Mauldin at Frobes on 5/24/18