The only mystery about the looming sovereign debt crisis is why its taken so long to arrive. From Simon Black at sovereignman.com:
At the turn of the century in the year 1300, the Republic of Florence’s public debt was quite manageable at just 50,000 gold florins. That’s less than $100 per capita in today’s money.
By 1338, after a series of costly wars and expensive public works projects, Florence’s debt had ballooned to 450,000 gold florins. Four years later (after yet another war) it had grown to 600,000 gold florins.
This was crippling to public finances given that the government of Florence was paying between 10% and 15% interest on its debt.
To make matters worse, some of Florence’s most prominent banks had made bad loans to foreign governments– most notably to King Edward III of England, who had suffered terrible defeat against France in what would become known as the Hundred Years War.
Edward would ultimately default on his Italian bank loans, sparking a terrible banking crisis in Florence.
News traveled quickly that the most powerful financial center in Europe was in trouble. The government was near ruin, and the banks were collapsing.
And then came the plague.
