A new contagion of fear about sovereign debt!

"Last week, a Chinese rating agency downgraded U.S. debt from triple A and number one globally, to “double A with a negative outlook” and only thirteenth worldwide. The downgrade renewed fears that the sovereign debt crisis that began in Greece will soon reach America. That is the concern, but the U.S. is distinguished from Greece in that its debt is denominated in its own currency, over which it has sovereign control. The government can simply print the money it needs, or borrow it from a central bank that prints it. We should not let deficit hawks and short sellers dissuade the government from pursuing that obvious expedient.

We did not hear much about “sovereign debt” until early this year, when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter:

“On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral.

“Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop.

“The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely!”