Thanks for your post, it raises many interesting issues. I am probably not qualified to make any comments, but I am sure those who know more will correct my mistakes...
Your statement that many of the world's debtor nations are reaching the point of default is accurate, but there is reason to doubt whether this will trigger a cascade effect.
First, in the 1982 Debt Bomb crisis the belief that Mexico's default would lead to massive defaults by other third world countries and bank failures in the first world did not materialize. The lack of solidarity by Southern countries in renouncing their debt burdens was due to differences in regime types and the context of the debt burden in each country and region.
Second, since the 1982 Debt crisis bankers and intergovernmental institutions have learned to "manage" sovereign defaults and debt rescheduling. While a massive group of defaults by heavily indebted third world countries would wipe out our banking system and stock market, defaults by individual countries can be managed (I think there is an article by Charles Lipson on this titled "The Bankers' Dilemma").
Third, there have been several massive shocks to the post-Bretton Woods international financial system since 1982, but the financial system has not collapsed. Furthermore, while there have been riots against the IMF and austerity programs in several countries, there is little prospect that another shock to the system will lead to a radical political revolution.
Many people are fascinated by predicting the next big crash. But what's the point, aside from millenarian fantasy? Even if there is a global crash, a viable counter-hegemonic discourse to this casino-capitalism has yet to materialize. I think that it is more useful to try to understand how this international political economy continues to persist despite recurrent market failures.
As I see it, the current international financial system is articulated through at least three inter-related spheres: preventive (risk and reserve policies); regulative (money and exchange policies); and corrective (debt and debt rescheduling policies). The institutions, actor networks, and norms that make up these spheres function to sustain the current monetary order and the hierarchical system of dominance between countries. This system will not simply collapse like a house of cards with the next market "correction". Perhaps we should concentrate on politicizing these institutions and finding leverage points for heavily indebted states and their peoples.
Sincerely,
Vikash Yadav
E-mail: vikash1 at ssc.upenn.edu Web: www.ssc.upenn.edu/~vikash1/