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Why the U.S. need not fear a Sovereign Debt Crisis: unlike Greece, it is actually Sovereign
Originally posted on Ms. Brown's WebOfDebt.com website on July 22th, 2010
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 thirteenth 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 it 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:
So said the media, but note that Greece and Portugal were doing remarkably well only 3 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:
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 America,” in which he warned:
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:
Damon Vrabel, of the Council on Renewal in Seattle, concludes:
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:
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.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com, and www.public-banking.com.
Ms. Brown's stories are republished in the Baltimore Chronicle with permission of the author.
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Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.This story was published on July 23, 2010.
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