US BONDS ARE AS SAFE AS PEARL HARBOUR IN 1941

Pauper children from Sweden.

What is happening to Greece will happen to the USA?

The following have huge debt problems: Japan, the UK, Ireland, Spain, Greece, Portugal, Iceland and the USA.

In the Financial Times, on 10 February 2010, Niall Ferguson tells us that a Greek crisis is coming to America

According to Niall Ferguson:

1. Greece has the following choices

(A) have a huge reduction in government spending - reducing the deficit from 13% to 3% of GDP within 3 years

OR (B) Decide not to pay back the money it owes.

In other words - default on all or part of the Greek government's debt.

OR (C) be given money by Germany and others. In other words, some kind of bail-out.


Map of countries by external debt in $US, from CIA factbook.

2. The USA is like Greece.

"US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941."

3. When the USA finds it difficult to get people to lend it money, interests rates have to go up to attract potential lenders.

4. Higher interest rates can hurt home owners and businesses.

Some heavily indebted businesses could be in deep trouble.

The government's debt would increase due to higher interest payments having to paid.

The economy would slow down.


5. The Chinese have greatly reduced their lending to the USA.

Their purchases of Treasury Bonds have been reduced from around 47% of new issuance in 2006 to 20% in 2008 to an estimated 5% in 2009.

6. Morgan Stanley thinks the interest rate on some bonds will rise to 5.5% this year.

7. In early February 2010, Moody’s Investors Service warned that the triple A credit rating of the US should not be taken for granted.