Niall Ferguson: Treasury Bond Vigilantes Coming, Default Or Inflation Choice For US

Harvard Professor Niall Ferguson was at the Aspen Ideas Festival and met up with Eric Shatzker of Bloomberg. He said the Treasury bond vigilantes are coming. Meaning US Treasury bonds will be under attack by short sellers, like Bear Stearns and Lehman Brothers.
"Sooner or later, maybe after Japan has felt the pain, the bond vigilantes will get to the United States. I don't think it will be this year, because the worse things get in the Eurozone, the more attractive US Treasuries look. But in the absence of any political will to address this problem and the latest numbers from the congressional budget office should scare everybody in this country. This is simply an inevitability."
"So we really have at this point a kind of choice before us. Is it going to be inflation or is it going to be default.  Right now what's really troubling is that there's no sign of inflation, which is the easy way out of a debt burden in the United States. On the contrary, we have monetary contraction at a really quite alarming rate and effectively zero inflation in terms of core CPI.  So the [option?] of inflating this debt away, which a lot of people think will be exercised, doesn't seem to be there right now. What you're left with is therefore default and I think it's a fair bet that the United States will default, at least on the unfunded liabilities of social security and Medicare at some point in the foreseeable future."

He closed by saying a new Government stimulus could pull the trigger. Be careful if you own 30-year Treasury debt. He was also quoted in AspenTimes.com saying we have six years to survive. For recent posts featuring Niall Ferguson click here or the label.
“If you really want to see when an empire is getting vulnerable, the big giveaway is when the costs of serving the debt exceed the cost of the defense budget,” Ferguson said. That will happen in the United States within the next six years, he predicted. (AspenTimes)

Source: Bloomberg


Congressional Budget Office, Long Term Budget Outlook
June 2010 - CBO.gov

Related Posts

Comments

HTML Comment Box is loading comments...