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America is nowhere near a Greek-style crisis

First published: Financial Times, 12/02/2010

Letter to the Financial Times

Sir, Niall Ferguson is a wonderful and insightful economic historian, but the assertion that contemporary America is inches away from a Greek-style debt crisis is uncharacteristically superficial (“A Greek crisis is coming to America”, February 11). There is no likelihood that the US will repudiate its debt, and precious little chance that it can default via inflation in the foreseeable future. Prof Ferguson and others who have long expected bond yields to jump because of rising public debt and inflation are in for a very long wait.

The most optimistic, though somewhat delusional, forecasts have money gross domestic product growth returning to about 5 per cent a year over the next five years. That would give some upside risk to current bond yields but not of crisis proportions. The issue then, to follow on from Greece and southern Europe, is whether the bond market can retain credibility over time in US economic and fiscal management, not the size of its debt, per se.

The US has at least four assets that don’t exist in the eurozone countries. First, it prints the currency in which its liabilities are denominated, and can monetise further, if needs be. Second, it can depreciate its currency. Third, it offers significant and sought after capital market opportunities to its foreign creditors. Fourth, although we have all had crisis-related Big Government thrust upon us, the next years will most li…more