America, he maintained, would suffer a sovereign debt crisis as well, and this would happen sooner than expected.
"The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF."
The catch is that the U.S. does not need to satisfy the IMF . . . .
"Sovereign Debt" Is an Oxymoron
America cannot actually suffer from a sovereign debt crisis. Why? Because it has no sovereign debt. As Wikipedia explains:
"A sovereign bond is a bond issued by a national government. The term usually refers to bonds issued in foreign currencies, while bonds issued by national governments in the country's own currency are referred to as government bonds. The total amount owed to the holders of the sovereign bonds is calledsovereign debt."
Damon Vrabel, of the Council on Renewal in Seattle, concludes:
"[T]he sovereign debt crisis . . . is a fabrication of the Ivy League, Wall Street, and erudite periodicals like the Financial Times of London. . . . It seems ridiculous to point this out, but sovereign debt implies sovereignty. Right? Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions? How could they be so easily attacked by the likes of George Soros, JP Morgan Chase, and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders? A true sovereign is in debt to nobody . . . ."
Unlike Greece and other EU members, which are forbidden to issue their own currencies or borrow from their own central banks, the U.S. government can solve its debt crisis by the simple expedient of either printing the money it needs directly, or borrowing it from its own central bank, which prints the money. The current term of art for this maneuver is "quantitative easing," and Ferguson says it is what has so far "stood between the US and larger bond yields" that, and China's massive purchases of U.S. Treasuries. Both are winding down now, he warns, renewing the hazard of a sovereign debt crisis.
"Explosions of public debt hurt economies . . . ," Ferguson contends, "by raising fears of default and/or currency depreciation ahead of actual inflation, [pushing] up real interest rates."
Market jitters may be a hazard, but if the U.S. finds itself with government bonds and no buyers, it will no doubt resort to quantitative easing again, just as it has in the past not necessarily overtly, but by buying bonds through offshore entities, swapping government debt for agency debt, and other sleights of hand. The mechanics may vary, but so long as "Helicopter Ben" is at the helm, dollars are liable to appear as needed.
Hyperinflation: A Bogus Threat Today
Proposals to solve government budget crises by simply issuing the necessary funds, whether as currency or as bonds, invariably meet with dire warnings that the result will be hyperinflation. But before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and today the world is struggling with deflation. The U.S. money supply has been shrinking at an unprecedented rate. In a May 26 article inThe Financial Times titled "US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,"Ambrose Evans-Pritchard observed: