SUPER POWERS CAN HANDLE SUPER DEBT?

"World renowned Harvard economist Niall Ferguson says the USA is now unlikely to default on its debt (actually only partially) and that the reason they won’t “run out” of money has nothing to do with their status as a currency issuer, but has everything to do with being a super power which gives them the ability to handle “super debts” (via Business Insider):

“I think we are going to get some defaults one way or the other. The U.S. is a different story. First of all I think the debt to GDP ratio can go quite a lot higher before there’s any upward pressure on interest rates. I think the more I’ve thought about it the more I’ve realized that there are good analogies for super powers having super debts. You’re in a special position as a super power. You get, especially, you know, as the issuer of the international reserve currency, you get a lot of leeway. The U.S. could conceivably grow its way out of the debt. It could do a mixture of growth and inflation. It’s not going to default. It may default on liabilities in Social Security and Medicare, in fact it almost certainly will. But I think holders of Treasuries can feel a lot more comfortable than anyone who’s holding European bonds right now.”

I don’t know what that means really. Japan isn’t really a super power, but they have handled a far larger debt load for far longer than the USA has. He doesn’t seem to recognize that being sovereign in your currency is the key factor here. But this position is a big change from the position he’s maintained for quite some time now. Interestingly, he concedes that Paul Krugman was somehow “right” about the USA’s position even though Professor Krugman only just recently that being a currency issuer is the key differentiating factor between Europe and the USA…."

at http://pragcap.com/super-powers-can-handle-super-debt