Is It Certain That America Will Not Go Bankrupt?
Published in Il Giornale
(Italy) on 19 April 2011
by Marcello Foa (link to original)
Yesterday [April 18], markets fell after a rating agency adjusted its outlook on the future of U.S. debt. Indeed, it is not a surprise for those who observe reality in a disillusioned way. For some time now, with the contribution of several bloggers, on “Il Cuore del Mondo,”* I have argued that the U.S. debt is unsustainable, and that the triple A rating of U.S. Treasury bonds is very generous — almost a reward for a country that, in spite of all that has happened, remains the cornerstone of the international financial system.
It is a cornerstone for sure, but one with prominent cracks.
The debt-GDP ratio is now going to reach 100 percent, already largely owned by foreigners.
The Americans, in contrast to Italians, not only do not save, but are also often indebted on an individual level, so the amount of debt (public and private) is colossal.
Many U.S. states are on the verge of bankruptcy.
The Federal Reserve is a central bank that is not transparent; it operates according to inscrutable policies and, in fact, it is placed in a position to evade checks and balances.
Treasury bonds are already today barely desirable, and for this reason a giant such as PIMCO has wisely got rid of them for some months now. Furthermore, it is astonishing that today the same Federal Reserve is one of the greatest buyers of T-bonds, in an amazing short circuit: The state falls into debt, but it cannot sell all state bonds, which then are bought by the central bank. This is the kind of stuff that is suitable for a third world country on the verge of bankruptcy.
The assumption is that America is “too bog [sic] to fail,” or rather, too big to fail, and so everybody thinks that in the end a solution will be found.
Nevertheless, I argue that America is too big to be rescued, and that in history no empire has been saved if it was not already inherently healthy. Some of them went bankrupt exactly because of debts, as the Ottoman Empire did. And yet the world went on just the same… However great a country may be, it cannot defy the laws of nature and gravity.
I wonder: Are we really sure that America will not go bankrupt?
*Translator’s Note: Il Cuore del Mondo is the author’s blog.
It is a cornerstone for sure, but one with prominent cracks.
The debt-GDP ratio is now going to reach 100 percent, already largely owned by foreigners.
The Americans, in contrast to Italians, not only do not save, but are also often indebted on an individual level, so the amount of debt (public and private) is colossal.
Many U.S. states are on the verge of bankruptcy.
The Federal Reserve is a central bank that is not transparent; it operates according to inscrutable policies and, in fact, it is placed in a position to evade checks and balances.
Treasury bonds are already today barely desirable, and for this reason a giant such as PIMCO has wisely got rid of them for some months now. Furthermore, it is astonishing that today the same Federal Reserve is one of the greatest buyers of T-bonds, in an amazing short circuit: The state falls into debt, but it cannot sell all state bonds, which then are bought by the central bank. This is the kind of stuff that is suitable for a third world country on the verge of bankruptcy.
The assumption is that America is “too bog [sic] to fail,” or rather, too big to fail, and so everybody thinks that in the end a solution will be found.
Nevertheless, I argue that America is too big to be rescued, and that in history no empire has been saved if it was not already inherently healthy. Some of them went bankrupt exactly because of debts, as the Ottoman Empire did. And yet the world went on just the same… However great a country may be, it cannot defy the laws of nature and gravity.
I wonder: Are we really sure that America will not go bankrupt?
*Translator’s Note: Il Cuore del Mondo is the author’s blog.