Ponce
28th July 2010, 12:49 PM
No fear of Sovereign Debt Crisis in the US.
* *
From: Ellen Brown <ellenhbrown@gmail.com> Date: 25.07.2010 06:01 PM
Why the* U.S. Need Not Fear a Sovereign Debt Crisis*: Unlike Greece, It
is Actually Sovereign
Ellen Brown
Posted: July 23, 2010 10:45 AM
Last week, a Chinese rating agency downgraded U.S. debt from triple A
and number one globally, to "double A with a negative outlook" and only
13th worldwide. The downgrade renewed fears that the sovereign debt
crisis that began in Greece will soon reach America. That is the
concern, but the U.S. is distinguished from Greece in that its debt is
denominated in its own currency, over which it has sovereign control.
The government can simply print the money it needs or borrow from a
central bank that prints it. We should not let deficit hawks and short
sellers dissuade the government from pursuing that obvious expedient.
We did not hear much about "sovereign debt" until early this year when
Greece hit the skids. Investment adviser Martin Weiss wrote in a
February 24 newsletter:
On October 8, Greece's benchmark 10-year bond was stable and rising.
Then, suddenly and without warning, global investors dumped their Greek
bonds with unprecedented fury, driving its market value into a death
spiral.
Likewise, Portugal's 10-year government bond reached a peak on December
1, 2009, less than three months ago. It has also started to plunge
virtually nonstop.
The reason: A new contagion of fear about sovereign debt! Indeed, both
governments are so deep in debt, investors worry that default is not
only possible -- it is now likely!
So said the media, but note that Greece and Portugal were doing
remarkably well only three months earlier. Then, "suddenly and without
warning," global investors furiously dumped their bonds. Why? Weiss and
other commentators blamed a sudden "contagion of fear about sovereign
debt." But as Bill Murphy, another prolific newsletter writer,
reiterates, "Price action makes market commentary." The pundits look at
what just happened in the market and then dream up some plausible theory
to explain it. What President Franklin Roosevelt said of politics,
however, may also be true of markets: "Nothing happens by accident. If
it happens, you can bet it was planned that way."
That the collapse of Greece's sovereign debt may actually have been
planned was suggested in a Wall Street Journal article in February, in
which Susan Pullian and co-authors reported:
Some heavyweight *hedge funds *have launched *large bearish bets against
the euro *in moves that are reminiscent of the trading action at the
height of the U.S. financial crisis.
The big bets are emerging amid gatherings such as *an exclusive 'idea
dinner' *earlier this month that included hedge-fund titans SAC Capital
Advisors LP and Soros Fund Management LLC.
[...] There is nothing improper about hedge funds jumping on the same
trade unless it is deemed by regulators to be collusion. Regulators
haven't suggested that any trading has been improper.
Regulators hadn't suggested it yet; but on the same day that the story
was published, the *antitrust division of the U.S. Justice Department
sent letters to a number of hedge funds* attending the dinner, *warning
them not to destroy any trading records* involving market bets on the euro.
Represented at the dinner was the hedge fund of George Soros, who was
instrumental in collapsing the British pound in 1992 by heavy
short-selling. *Soros was quoted as warning that if the European Union
did not fix its finances, "the euro may fall apart."* Was it really a
warning? Or was it the sort of rumor designed to make the euro fall
apart? A concerted attack on the euro, beginning with its weakest link,
the Greek bond, could bring down that currency just as short selling had
brought down the pound.
These sorts of rumors have not been confined to the Greek bond and the
euro. In The Financial Times, *Niall Ferguson* wrote an article titled
"A *Greek Crisis Is Coming to Americ*a," in which he warned:
It began in Athens. It is spreading to Lisbon and Madrid. But it would
be a grave mistake to assume that the sovereign debt crisis that is
unfolding will remain confined to the weaker eurozone economies.
*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 called sovereign debt.
Damon Vrabel, of the Council on Renewal in Seattle, concludes:
The 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 in The Financial Times titled "US Money Supply Plunges at
1930s Pace as Obama Eyes Fresh Stimulus," Ambrose Evans-Pritchard observed:
The stock of money fell from $14.2 trillion to $13.9 trillion in the
three months to April, amounting to an annual rate of contraction of
9.6pc. The assets of institutional money market funds fell at a 37pc
rate, the sharpest drop ever.
So long as workers are out of work and resources are sitting idle, as
they are today, money can be added to the money supply without driving
prices up. Price inflation results when "demand" (money) increases
faster than "supply" (goods and services). If the new money is used to
create new goods and services, prices will remain stable. That is where
"quantitative easing" has gone astray today: the money has not been
directed into creating goods, services and jobs but has been steered
into the coffers of the banks, cleaning up their balance sheets and
providing them with cheap credit that they have not deigned to pass on
to the productive economy.
Our forefathers described the government they were creating as a "common
wealth," ensuring life, liberty and the pursuit of happiness for its
people. Implied in that vision was an opportunity for employment for
anyone wanting to work, as well as essential social services for the
population. All of that can be provided by a government that claims
sovereignty over its money supply.
*A true sovereign need not indebt itself to private banks but can simply
issue the money it needs*. That is what the American colonists did, in
the innovative paper money system that allowed them to flourish for a
century before King George forbade them to issue their own scrip
prompting the American Revolution. It is also what Abraham Lincoln did,
foiling the Wall Street bankers who would have trapped the North in debt
slavery through the exigencies of war. And it is what China itself did
successfully for decades, before it succumbed to globalization. China
got the idea from Abraham Lincoln through his admirer Sun Yat-sen; and
Lincoln took his cue from the American colonists, our forebears. We need
to reclaim our sovereign right as a nation to fund the common wealth
they envisioned without begging from foreign creditors or entangling the
government in debt.
* *
From: Ellen Brown <ellenhbrown@gmail.com> Date: 25.07.2010 06:01 PM
Why the* U.S. Need Not Fear a Sovereign Debt Crisis*: Unlike Greece, It
is Actually Sovereign
Ellen Brown
Posted: July 23, 2010 10:45 AM
Last week, a Chinese rating agency downgraded U.S. debt from triple A
and number one globally, to "double A with a negative outlook" and only
13th worldwide. The downgrade renewed fears that the sovereign debt
crisis that began in Greece will soon reach America. That is the
concern, but the U.S. is distinguished from Greece in that its debt is
denominated in its own currency, over which it has sovereign control.
The government can simply print the money it needs or borrow from a
central bank that prints it. We should not let deficit hawks and short
sellers dissuade the government from pursuing that obvious expedient.
We did not hear much about "sovereign debt" until early this year when
Greece hit the skids. Investment adviser Martin Weiss wrote in a
February 24 newsletter:
On October 8, Greece's benchmark 10-year bond was stable and rising.
Then, suddenly and without warning, global investors dumped their Greek
bonds with unprecedented fury, driving its market value into a death
spiral.
Likewise, Portugal's 10-year government bond reached a peak on December
1, 2009, less than three months ago. It has also started to plunge
virtually nonstop.
The reason: A new contagion of fear about sovereign debt! Indeed, both
governments are so deep in debt, investors worry that default is not
only possible -- it is now likely!
So said the media, but note that Greece and Portugal were doing
remarkably well only three months earlier. Then, "suddenly and without
warning," global investors furiously dumped their bonds. Why? Weiss and
other commentators blamed a sudden "contagion of fear about sovereign
debt." But as Bill Murphy, another prolific newsletter writer,
reiterates, "Price action makes market commentary." The pundits look at
what just happened in the market and then dream up some plausible theory
to explain it. What President Franklin Roosevelt said of politics,
however, may also be true of markets: "Nothing happens by accident. If
it happens, you can bet it was planned that way."
That the collapse of Greece's sovereign debt may actually have been
planned was suggested in a Wall Street Journal article in February, in
which Susan Pullian and co-authors reported:
Some heavyweight *hedge funds *have launched *large bearish bets against
the euro *in moves that are reminiscent of the trading action at the
height of the U.S. financial crisis.
The big bets are emerging amid gatherings such as *an exclusive 'idea
dinner' *earlier this month that included hedge-fund titans SAC Capital
Advisors LP and Soros Fund Management LLC.
[...] There is nothing improper about hedge funds jumping on the same
trade unless it is deemed by regulators to be collusion. Regulators
haven't suggested that any trading has been improper.
Regulators hadn't suggested it yet; but on the same day that the story
was published, the *antitrust division of the U.S. Justice Department
sent letters to a number of hedge funds* attending the dinner, *warning
them not to destroy any trading records* involving market bets on the euro.
Represented at the dinner was the hedge fund of George Soros, who was
instrumental in collapsing the British pound in 1992 by heavy
short-selling. *Soros was quoted as warning that if the European Union
did not fix its finances, "the euro may fall apart."* Was it really a
warning? Or was it the sort of rumor designed to make the euro fall
apart? A concerted attack on the euro, beginning with its weakest link,
the Greek bond, could bring down that currency just as short selling had
brought down the pound.
These sorts of rumors have not been confined to the Greek bond and the
euro. In The Financial Times, *Niall Ferguson* wrote an article titled
"A *Greek Crisis Is Coming to Americ*a," in which he warned:
It began in Athens. It is spreading to Lisbon and Madrid. But it would
be a grave mistake to assume that the sovereign debt crisis that is
unfolding will remain confined to the weaker eurozone economies.
*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 called sovereign debt.
Damon Vrabel, of the Council on Renewal in Seattle, concludes:
The 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 in The Financial Times titled "US Money Supply Plunges at
1930s Pace as Obama Eyes Fresh Stimulus," Ambrose Evans-Pritchard observed:
The stock of money fell from $14.2 trillion to $13.9 trillion in the
three months to April, amounting to an annual rate of contraction of
9.6pc. The assets of institutional money market funds fell at a 37pc
rate, the sharpest drop ever.
So long as workers are out of work and resources are sitting idle, as
they are today, money can be added to the money supply without driving
prices up. Price inflation results when "demand" (money) increases
faster than "supply" (goods and services). If the new money is used to
create new goods and services, prices will remain stable. That is where
"quantitative easing" has gone astray today: the money has not been
directed into creating goods, services and jobs but has been steered
into the coffers of the banks, cleaning up their balance sheets and
providing them with cheap credit that they have not deigned to pass on
to the productive economy.
Our forefathers described the government they were creating as a "common
wealth," ensuring life, liberty and the pursuit of happiness for its
people. Implied in that vision was an opportunity for employment for
anyone wanting to work, as well as essential social services for the
population. All of that can be provided by a government that claims
sovereignty over its money supply.
*A true sovereign need not indebt itself to private banks but can simply
issue the money it needs*. That is what the American colonists did, in
the innovative paper money system that allowed them to flourish for a
century before King George forbade them to issue their own scrip
prompting the American Revolution. It is also what Abraham Lincoln did,
foiling the Wall Street bankers who would have trapped the North in debt
slavery through the exigencies of war. And it is what China itself did
successfully for decades, before it succumbed to globalization. China
got the idea from Abraham Lincoln through his admirer Sun Yat-sen; and
Lincoln took his cue from the American colonists, our forebears. We need
to reclaim our sovereign right as a nation to fund the common wealth
they envisioned without begging from foreign creditors or entangling the
government in debt.