Want to see the next bubble? Over at FT, they have it for you - if you want to see it (click image for larger).

According to the

report

, between 1990 and 2006 — the year in which issuance of Asset-Backed Securities (ABS) peaked — assets with the highest credit rating rose from a little over 20 per cent of total rated fixed-income issues to almost

55 per cent

. Think about it. More than half of the world’s debt securities were, for all intents and purposes,

considered risk-free

. In 2006, that was nearly

$5,000bn

of assets.

The financial crisis had a lot to do with triple-A ratings being slapped on to subprime securities which didn’t warrant them,

we know that

. The report says between 1990 and 2006 ABS accounted for 64 per cent of the total growth in the amount of AAA-rated fixed income, compared with 27 per cent attributable to the growth in public debt, 2 per cent to corporate and 8 per cent to other products.

But watch what starts happening from 2008 and 2009.

The AAA bubble re-inflates and suddenly sovereign debt becomes the major force driving the world’s triple-A supply. The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it’s true. But you also had a

plethora of incoming bank regulation

to purposefully herd investors towards holding more government bonds, plus a

glut of central bank liquidity facilities

accepting government IOUs as collateral. Where ABS dissipated,

sovereign debt stood in

to fill the gap. And

more

.

It’s one reason why the sovereign crisis is well and truly painful.

It’s a global repricing of risk,

again

, but one that has the potential for a much larger

pop

, so to speak.

Once again - the issue isn't govt revenue - it is spending. Anyone who thinks we are going to have a steady state shipbuilding budget through 2030 is, in a word; high.

 

View the full article

That chart is more than a little unsettling.