As the global financial crisis has worsened, Europeans could only look on with envy as the United States continued to issue debt and successfully sell it – and at amazingly low interest rates. That’s because America has a central bank empowered to be the ‘lender of last resort,’ which means that if private investors don’t buy U.S. Treasury Bonds, the FED will. According to Ulrike Herrmann of Germany’s Die Tageszeitung, it is time the E.U. empowers the European Central Bank to do the same.
For the Die Tageszeitung, Ulrike Herrmann starts out this way:
The sum is enormous: America’s debt has reached $15 trillion. Yet that doesn’t seem to bother anyone. Undeterred, investors shovel their money into the United States. For a ten-year government bond, the U.S. must pay only 1.9 percent interest. That’s not just next to nothing, it is less than nothing. After all, inflation is at 3.53 percent. So investors are actually losing money when investing in the U.S.
More amazing still: Even the turbulence of U.S. politics doesn’t seem to shake investors. Calmly on Monday, they witnessed the U.S. Congress unable to even agree on an austerity program. As if nothing had happened, the returns for U.S. government bonds remained sensationally low.
Europeans can only be envious. Most euro-countries have far less debt than the U.S. – and still E.U. monetary union is headed toward bankruptcy. The Spaniards must now pay about 7 percent interest, something no country can sustain in the long run – and despite a Spanish public debt-to-GDP ratio of only about 70 percent. In the U.S., it is nearly 100 percent. Yet Washington easily borrows trillions – while investors immediately panic just thinking about Spain; or Belgium, Italy, and most recently, France.
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