Ecuador, which defaulted in December 2008 when President Rafael Correa said the nation wouldn't make an interest payment of more than $30 million on a $510 million bond issue, carries a CCC+ rating at S&P. They define the debt issuers in the CCC category as "currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments." Translation: Probably in for hard times.

Argentina, Grenada, Lebanon, Pakistan and Bolivia are judged to be a little better off, but they're saddled with still dubious B- ratings. The single-B classification at S&P means these nations are "more vulnerable to adverse business, financial and economic conditions but currently [have] the capacity to meet financial commitments." Translation: Not good, and needs some things to go right, preferably soon.

 
Mexico: This week, S&P cut some of its ratings on America’s southern neighbor, but said the outlook is stable. Why the move? Because the agency believes Mexico's attempts to raise money through sources other than oil revenue and to make the economy more efficient "will likely be insufficient to compensate for the weakening of its fiscal profile." Put it on your watch list.
Spain: Before you go thinking that problems can only emerge from closed regimes or places economists have stuck with the "developing" tag, think again. Earlier this month, Spain's outlook was dropped to negative from stable by S&P, owing to fears the nation "will experience a more pronounced and persistent deterioration in its public finances and a more prolonged period of economic weakness versus its peers."

What Is Sovereign Debt?

Now that we’ve (hopefully) got your attention, here are some definitions for those unfamiliar with the subject:

“Sovereign debt” refers to the debt of nations. Just as the U.S. issues Treasuries backed by the “full faith and credit” of the government, other nations sell bonds in order to raise money to pay for programs ranging from armies to public healthcare.

A “default” refers to a nation’s inability (or refusal) to repay its debt. Whether a homeowner sends “jingle mail” (home keys via post) because a lost job makes mortgage payments impossible or because a drop in home values makes paying the mortgage uneconomical, the effect on the bank is the same: they lent money and now they’re not getting it back.

The same goes for investors who’ve purchased sovereign debts. This is critical because nations’ debt is often viewed as safer than corporate debt since countries have the ability to raise taxes and increase tariffs in order to raise money to pay their debts.

But “safer” is not the same as “safe” and certainly not guaranteed. There are risks in owning nations’ or sovereign debt, as with any stock. Defaults by Argentina in 2002 and Russia in 1998 are just recent examples in the long history of sovereign debt defaults going back to the Spanish empire in the 1600s.

In a new book “This Time Is Different”, economic professors Ken Rogoff of Harvard and Carmen Reinhart of Maryland, detail the history of sovereign debt defaults, noting common traits, including:
High Debt-to-GNP Ratio

Since 1970, nearly half of sovereign defaults have occurred in nations debt-to-GNP (gross national product) ratios of 60% or more. This makes sense: As a country’s debts start to approach the size of its total economy (or GNP), it gets harder to make the payments, just like a individual whose debts start to eat up all (or most) of their salary.

Countries like the U.S. and U.K. have triple-A ratings, meaning they are considered the strongest in terms of the ability to repay their debt. (The ratings from top to bottom are based on the alphabet, AAA being the best to CCC meaning the financial world doubts your ability to pay the money back.) However, some experts worry about those pristine ratings being in jeopardy as Anglo-Saxon nations continue to accumulate massive amounts of debt to pay for spending, and to take on the recession.
A World of Risk

Few investors seriously worry about an imminent default by the U.S. or the U.K. But with worries about Dubai's ability to pay its debts shaking markets across the globe in recent weeks, investors are on guard about which other countries might be in dire financial straights.

Ratings agency Moody's, for example, said Tuesday that the upcoming year could be a rough one for government debt, issuing a report depressingly titled "Fasten Your Seat Belts: Tumultuous Times Ahead."

Anyone with access to the business pages knows individuals, banks, companies and governments everywhere have a serious problem -- just how bad it is and how long it will last is still being sorted out. Unfortunately, we probably still have a way to go before brighter days return.

What does this mean for the Christian and does it have any biblical significance? The End Times will usher in a global financial meltdown. A world leader will arise and have all of the answers needed to fix the problems...stay tuned..