Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Quit Worrying, Sovereign Defaults Happen All the Time

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

If aliens were to have landed on the planet Earth and picked up a Wall Street Journal at any point over the past year, they'd be excused for concluding that sovereign defaults are rare and momentous events. Can you think of the last time you read a major newspaper and didn't come across an urgent story about the European debt crisis? I can't -- though I wish I could, just to prove myself wrong.

The reality is that debt crises occur everywhere and all the time. According to Carmen Reinhart and Kenneth Rogoff's magisterial study of the subject, This Time Is Different, "most countries in all regions have gone through a prolonged phase as serial defaulters on debt owed to foreigners" (emphasis added). Their book talks about the "universality of default" and says things like "serial default is the norm." And Reinhart and Rogoff would know, as they cataloged literally hundreds of sovereign defaults over the years.

The reason I bring this up is to add context to the current discussion about Europe's travails. While I'm not trying to minimize the significance of the ongoing crisis, I am trying to say that we've been here before -- hundreds of times. Indeed, as you can see in the table below, many countries around the world have spent much of their time as independent nations in one stage of default or another.


Percentage of Years in Default or Rescheduling Since Independence or 1800

Total Number of Defaults and/or Reschedulings

Ecuador 58.2% 9
Greece 50.5% 5
Russia 39.1% 5
Hungary 37.1% 7
Argentina 32.5% 7
Brazil 25.4% 9
Spain 23.7% 13
China 13% 2
Japan 5.3% 1

Source: Carmen Reinhart and Kenneth Rogoff, This Time Is Different.

What about Greece's recently announced 130-billion-euro bailout, you ask? Don't let that fool you. The consensus is that it's only a temporary solution meant to buy time before a potential series of orderly defaults, starting in Greece and ending God only knows where. For the time being, in turn, I'd recommend that investors steer clear of publically traded European financial companies like Germany-based Deustche Bank (NYSE: DB  ) and Switzerland-based Credit Suisse (NYSE: CS  ) and UBS (NYSE: UBS  ) , all of which will be significantly affected if and when defaults begin.

Instead, I suggest that you learn about the three American companies so successful and well diversified that few macro events could ever knock them off their profitable paths. Our analysts reveal the identity of these companies in our recently released free report, "3 American Companies Set to Dominate the World." To access this timely report before the rest of the market catches on, click here now -- it's free.

Fool contributor John Maxfield does not have a financial position in any of the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 23, 2012, at 11:08 AM, DJDynamicNC wrote:

    Spain has defaulted an average of once every 16 years. That was unexpected.

    Great information in this, thanks for the article.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1785922, ~/Articles/ArticleHandler.aspx, 10/23/2016 5:58:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
CS $13.70 Down -0.07 -0.51%
Credit Suisse Grou… CAPS Rating: ***
DB $14.31 Down -0.06 -0.42%
Deutsche Bank CAPS Rating: **
UBS $13.67 Up +0.03 +0.22%
UBS AG (USA) CAPS Rating: **