EVEN BANKERS FEAR RISING SOVEREIGN DEBT
By Christopher J. Petherick
Sovereign debt—the fancy term for direct loans, bonds and
other financing accrued by governments around the world—is out of control in industrialized
countries, says the Bank of International Settlements (BIS) in a new report.
The situation is so bad, claims the global financial institution that is the “bank
for the central banks,” in the years to come the United
States and Europe could be facing the same disaster that
befell Greece
two months ago.
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In a study, “The Future of Public Debt,” BIS’s chief economist
Stephen Cecchetti writes: “The aftermath of the financial crisis is poised to
bring a simmering fiscal problem in industrial economies to the boiling point.”
For the past several months, the focus has been on the sovereign debt of the
so-called “PIGS” countries—Portugal,
Ireland, Greece and Spain. But, according to BIS,
trouble is brewing for the largest economies in the world, namely the United States, Japan,
England and all of Western Europe. According to BIS calculations, by the end
of 2011, sovereign debt for these countries is expected to rise above 100
percent of their GDPs.
In the years following World War II, total U.S. debt actually exceeded GDP, thanks to the
frenzied borrowing spree carried out by President Franklin D. Roosevelt to “stimulate”
the economy and wage war in Europe. It was
only the unprecedented productivity on the part of middle-class Americans in
the 1950s that outpaced U.S. debt and brought it back under control.
As AFP has reported on numerous occasions, this is impossible
today, given that the global plutocracy has gutted America’s
working class, replacing the highly skilled productive jobs once commonplace in
America
with low-skilled service sector work or no job at all.
In its study, BIS specifically looked at bond markets.
In February, investors around the world had a “come to Jesus”
moment when it was revealed that Goldman Sachs had concealed a huge amount of
Greek debt through complicated financial derivatives called interest-rate
swaps. They responded by shunning Greek debt, forcing a crisis that required
European nations to step in with a multibillion-dollar bailout. As a result,
investors have become highly suspicious of governmental accounting.
Cecchetti writes that these suspicions are expected to start
showing up in bond markets. “The question is when markets will start putting
pressure on governments, not if,” writes Cecchetti. “When will investors start
demanding a much higher compensation for holding increasingly large amounts of
public debt?”
Making matters worse, when Wall Street collapsed, pension
funds took a huge hit. Governments now have to chip in even more to cover the
promises that have been made to retired bureaucrats and other civil servants.
With dwindling tax revenues and high unemployment, debt is
the only way governments can fund liabilities.
“Rapidly aging populations present a number of countries with the
prospect of enormous future costs that are not wholly recognized in current
budget projections,” writes Cecchetti. “The size of these future obligations is
anybody’s guess.”
Christopher J. Petherick is the owner and publisher at Brandywine House Books. Email him at at [email protected].
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(Issue # 17, April 26, 2010)
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