I think this will be the next thing to blowup. There has been a enormous deterioration of nations to meet their obligations. You can already see the currencies being traded heavily on the right side with little to no liquidity. (ILS, PLN, HUF) Also, Asian currencies offer spreads are extremely wide, similar to LatAm. US 10y CDS is currently at 41bp, compared to 3bp one year ago. Iceland is 872, Russia is 850. This is scary.
edit : deterioration of confidence in the ability of nations to meet their obligations
Safe to say that CDS and their byproducts work well in an environment of confidence, liquidity, and growth? But once one of those compontents is missing, it sets off a chain reaction. Where will this reaction end?