Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! CounterPunch is entirely supported by our readers. Your donations pay for our small staff, tiny office, writers, designers, techies, bandwidth and servers. We don’t owe anything to advertisers, foundations, one-percenters or political parties. You are our only safety net. Please make a tax-deductible donation today.
FacebookTwitterGoogle+RedditEmail

Why "Sovereign Debt" is an Oxymoron

by ELLEN BROWN

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 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:

“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. . . .

“It is impossible to calculate the precise effect of the elite traders’ bearish bets, but they have added to the selling pressure on the currency—and thus to the pressure on the European Union to stem the Greek debt crisis.

“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 . . . .

“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:

“[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 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.

ELLEN BROWN is the author of Web of Debt: the Shocking Truth About Our Money System and How We Can Break Free. She can be reached through her website.

WORDS THAT STICK

?

 

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

Weekend Edition
September 30, 2016
Friday - Sunday
Henry Giroux
Thinking Dangerously in the Age of Normalized Ignorance
Stanley L. Cohen
Israel and Academic Freedom: a Closed Book
Paul Craig Roberts – Michael Hudson
Can Russia Learn From Brazil’s Fate? 
Andrew Levine
A Putrid Election: the Horserace as Farce
Mike Whitney
The Biggest Heist in Human History
Jeffrey St. Clair
Roaming Charges: the Sick Blue Line
Rob Urie
The Twilight of the Leisure Class
Vijay Prashad
In a Hall of Mirrors: Fear and Dislike at the Polls
Alexander Cockburn
The Man Who Built Clinton World
John Wight
Who Will Save Us From America?
W. T. Whitney
When Women’s Lives Don’t Matter
Howard Lisnoff
What was Missing From The Nation’s Interview with Bernie Sanders
Jeremy Brecher
Dakota Access Pipeline and the Future of American Labor
Binoy Kampmark
Pictures Left Incomplete: MH17 and the Joint Investigation Team
Andrew Kahn
Nader Gave Us Bush? Hillary Could Give Us Trump
Steve Horn
Obama Weakens Endangered Species Act
Dave Lindorff
US Propaganda Campaign to Demonize Russia in Full Gear over One-Sided Dutch/Aussie Report on Flight 17 Downing
John W. Whitehead
Uncomfortable Truths You Won’t Hear From the Presidential Candidates
Ramzy Baroud
Shimon Peres: Israel’s Nuclear Man
Brandon Jordan
The Battle for Mercosur
Murray Dobbin
A Globalization Wake-Up Call
Jesse Ventura
Corrupted Science: the DEA and Marijuana
Richard W. Behan
Installing a President by Force: Hillary Clinton and Our Moribund Democracy
Andrew Stewart
The Democratic Plot to Privatize Social Security
Daniel Borgstrom
On the Streets of Oakland, Expressing Solidarity with Charlotte
Marjorie Cohn
President Obama: ‘Patron’ of the Israeli Occupation
Norman Pollack
The “Self-Hating” Jew: A Critique
David Rosen
The Living Body & the Ecological Crisis
Joseph Natoli
Thoughtcrimes and Stupidspeak: Our Assault Against Words
Ron Jacobs
A Cycle of Death Underscored by Greed and a Lust for Power
Kim Nicolini
Long Drive Home
Louisa Willcox
Tribes Make History with Signing of Grizzly Bear Treaty
Art Martin
The Matrix Around the Next Bend: Facebook, Augmented Reality and the Podification of the Populace
Andre Vltchek
Failures of the Western Left
Ishmael Reed
Millennialism or Extinctionism?
Frances Madeson
Why It’s Time to Create a Cabinet-Level Dept. of Native Affairs
Laura Finley
Presidential Debate Recommendations
José Negroni
Mass Firings on Broadway Lead Singers to Push Back
Leticia Cortez
Entering the Historical Dissonance Surrounding Desafinados
Robert J. Burrowes
Gandhi: ‘My Life is My Message’
Charles R. Larson
Queen Lear? Deborah Levy’s “Hot Milk”
David Yearsley
Bring on the Nibelungen: If Wagner Scored the Debates
September 29, 2016
Robert Fisk
The Butcher of Qana: Shimon Peres Was No Peacemaker
James Rose
Politics in the Echo Chamber: How Trump Becomes President
Russell Mokhiber
The Corporate Vice Grip on the Presidential Debates
FacebookTwitterGoogle+RedditEmail
[i]
[i]
[i]
[i]