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 America," 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.
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.
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.
Follow Ellen Brown on Twitter: www.twitter.com/ellenhbrown
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The Greek bailout lays bare the half-baked nature of the eurozone's economic union. It is a single currency without the political mechanisms to make sure that those who use it conform to the same rules, like the federal government can to an extent for states.
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To see whatt it is all about, go to http://www.webofdebt.com/
It shouldn't be allowed to be called 'Federal' anything, which obviously implies that its part of/endorsed by our government.
Ideas for a new name??
When China lends to us, it does so to get a return it will spend on African tantalum and Iranian oil. The dollar is not a hard currency. It is "backed" ONLY by our sterling reputation. If we default, the dollar becomes worthless internationally, and here is the important point. A US plumber may be able to use dollars to buy a US grown chicken. However, he will no longer be able to use dollars to buy non-us made copper pipe made of non-us mined copper or non-us made PVC made from non-US made oil. He goes out of business. So would our military: our ENTIRE military is built of foreign milled and mined steel, copper, oil. The net effect would be MASSIVE inflation of everything not made here INCLUDING raw minerals, chemicals, and materials.
The most fundamental definition of "sovereign" is that none can assail. No king or cop can stop you. If the dollar defaults, our "sovereignty" goes with it.
"If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."
On Saturday, I whip out my laser copier and photocopy until I have 30 dollars (ie, I am the Fed). On monday I pay you $15 dollars. However, the chicken rancher is on to my scheme and raises his price to $15/clucker to reflect my "inflationary monetary policy". I'm better off: now I have no debt. The chicken rancher doesn't care either way. But I have robbed you. What I owed you was not little slips of green paper, but a certain measure of purchasing power.
I would get to play this trick exactly once. After that once nobody would lend me any more money. OR they would insist on lending me dollars only for repayment in chickens (ie, gold or oil). If I'm self sufficient, I'm fine with that. But, as the United States, I am not fine because I produce less than I need to feed, clothe, house my family and THAT is why I'm borrowing. Help me out here: poke holes in this!
"Mr. Chairman, we have in this Country one of the most corrupt institutions
the world has ever known. I refer to the Federal Reserve Board and the
Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the
Government of these United States and the people of the United States out of
enough money to pay the Nation's debt. The depredations and iniquities of
the Fed has cost enough money to pay the National debt several times over.
This evil institution has impoverished and ruined the people of these
United States, has bankrupted itself, and has practically bankrupted our
Government."
"Some people who think that the Federal Reserve Banks are United States
Government institutions. They are private monopolies which prey upon the
people of these United States for the benefit of themselves and their
foreign customers; foreign and domestic speculators and swindlers; and rich
and predatory money lender."
"In that dark crew of financial pirates there are
those who would cut a man's throat to get a dollar out of his pocket; . . . "
"These twelve private credit monopolies were deceitfully and disloyally
foisted upon this Country by the bankers who came here from Europe and
repaid us our hospitality by undermining our American institutions."
If not, then please explain how exactly we will get along without those products, and countless other everyone relies but which no US manufacturer actually manufactures.
The only thing that should give the $US "currency" abroad is the very strength of its real national economy.
We do not print money to satisfy oil sheiks.
We create money for the purpose of providing the circulating medium that our national economy needs in order to facilitate the means for exchanging the goods and services among the producers and consumers - that's what a money system should be doing.
I hope you're not trying to imply that the government's money creation would be in addition to any other money creation.
There is no need for anyone except the government to provide for the national circulating medium.
The question becomes how to establish a standard for the internal use of the country that will serve to maintain a proper quantity of the nation's money so as to be non-inflationary and non-deflationary, hopefully near full-employment..
Economic stability and general price stability in this country is what will ensure the stability of the $US in global commerce.
Ask the IMF or the BIS.
When more countries dump their US cash holdings for precious metals, watch out, inflation will quickly turn into hyper inflation. Many of the banks in the US who depend on low precious metals prices will find themselves in a worst situation than the financial crisis we saw in 2008. JP Morgan for instance shorted Gold when it was at around 900$/ounce.
Ellen didn't mention gold.
Gold is inconsequential as related to currency and monetary sovereignty.
Nobody cares who is shorting gold and who isn't.
Unless it's in your book.
So what.
Who cares?
Why does the government tax at all?
Why are small businesses foundering over payroll tax, several people tell me they can't meet these payments every quarter is a crisis?
Why not lower everyones rate to the 15% that Buffet pays. or even lower for the poor?
The total amount that the government can create each year debt-free must be balanced by growth in the economy.
With a $13 T economy and 2.5 percent growth, the GUV can only add $325Billion in new money.
In addition, the GUV can create money to pay off maturing public debt instruments without causing inflation, because the bond represents monies previously created - the GUV is just paying it off without creating another debt.
So, VOILA ! , there goes the so-called, international-banker-invented, sovereign debt crisis.
It's actually a pretty good deal for the people, if you think about it.
The truth is that the government can reduce the tax burden for its normal expenditures on an ongoing basis (+/- $350 Billion), plus it can reduce the entire existing interest burden on government debt along with the maturity of those debts - which I believe are about $450 Billion today.
And that would be annually.
A t that point we could do two things:
1. Put an end to the the annual deficit-debt crybabying by the mass ignorati about things like sovereign debt-defaults.
2. Get the national economy onto a footing of meeting the ongoing needs of the people, while ending the system of debt-servitude which enables and promotes No. 1 .
It's called OUR national, permanent, sovereign money system.
Say the words.
The Money System Common.
Thank you.
it is hurting small business
America and World money supplies are basically in private hands....which are ruthless.
Proper Gov control and regulation is vital .Then the money can be directed into productivity...not financialisation, personal debt, foreign trade imbalances etc.
This is the single most important fact about the US economy - but it isn't taught in university economics departments!
So long as it continues, and so long as all new money in the US economy continues to start as debt to banks, Americans will continue to be progressively enslaved - as is happening terrifyingly fast today.
State Banks are not a "new" idea - they were the reason for the original struggle over which the USA was founded, for goodness sake.
American need to know their own history! . . the British central bank tried to force Americans to "borrow" money from them - but they lost the war Britain started in order to enforce this.
But a later generation of banksters set up the "fed" - so now the enemy doing the exact same fraud on the American people is within the USA itself.
This is THE issue which the Tea Partiers should make their own - it's what the original Tea Party was about (not the Tea tax, which was a minor irritant).
It's politically impossible to change the fed directly - 2/3 of Congress couldn't even get it audited!!
So starting at State level has to be politically more feasible.
if we could participate we would have less fear of inflation
low interest rates cause money to go to developing countries where rates are higher, TheEconomist july 17 2020
excess cash can cause bubbles
traders can corner markets, as they drove up prices of wheat recently
tell me how
For which I thank Ellen tremendously.
Call it sovereign debt, call it government debt, or call it a turkey that can fly--it is debt. If you print money to pay it off, you will debase your currency. Sooner or later, you will have inflation.
Look how Ms. Brown tries to justify this insane and reckless inflationary policy--by stating that we don't risk inflation as long as we have high unemployment. Well, a lot of us are working to change that situation, and with the blessing of heaven, maybe someday we'll reach that goal. And when we do, we'll still have the trillions in debt and their related interest payments, and no amount of increased tax revenue will stem the tide sufficient to service that debt. Therefore this magical "quantitative easing" will have to be employed, and the resulting inflation will not be pretty.
At the same time, Ms. Brown decries the actions of speculators. Speculators do what speculators do. If governments are so irresponsible as to set themselves up to be fleeced by these guys, it is the fault of the irresponsible government. And right now the US is setting itself up to be the world's chump. Lame, reality-denying economic "analysis" like Ms. Brown's here only contribute to the spirit of complacency that will contribute to our downfall.
Ms. Brown does well to compare us to Argentina.
most politicians, lefta and right are driving toward the cliff
Heavens to Betsy! Run for the hills!
The bad, stupid government is, ummm.... debasing the currency!
From what?
Since we left the gold standard of exchange, there is no such thing, as their is no BASE-is for the value of the currency, except relative to other currencies.
We are free-floating the exchange rate - so WHERE is the basis for debasing?
Any beef on those bones?
If you're worried about the Trillions in government debt, and you should be, then why should the government borrow the people's money that it can simply pay into existence in a non-inflationary and debt-free manner?
It is the job, the duty and the sovereign right of the government to provide the circulating medium of exchange for goods and services of the national economy.
How it does that is up to the government.
We can keep on borrowing it, or not, as Ellen Brown suggests here.
The Constitution gives the people's government the right to create and control the value of the currency. That's what sovereignty is all about.
Were the government NOT so stupid as to set them up for speculative manipulation by the bond marketeers, they would begin immediately to set the laws to do what the Colonists and Lincoln did - Greenbacks are still good dollar-for-dollar money.
Claiming that substantive monetary reform contributes to complacency is a little of that 'whistling-past-the-graveyard, IMHO.
Maybe you are too young to remember the seventies, when rampant inflation caused real wages to drop significantly. Those were tough times, but the economic polices embraced by the current administration, and celebrated by the likes of Ms. Brown, are much more exaggerated than those employed in the Carter years, so the effect is going to be worse, if we don't change course (and we probably won't).
Look for very high inflation, and very high interest rates to follow. Think it is hard to get a job now?