The monetary phase of the sovereign debt crisis

The extended analysis in the form of a provisional conclusion

We have tried to show that the $ 1000bn that the Fed will inject into the economy is a monetary blackmail whose instrument favors the value of financial assets accumulated in the US by foreigners because of positive balances of the balance rebalancing since years of balance of payments deficits. The Fed can inject liquidity, it will automatically produce a deterioration of its financial balance causing a shift in the value of $ and a depreciation of foreign assets accumulated in the US. The objective of the FED and the Treasury is to achieve a controlled devaluation of the $ allowing one hand to boost exports, on the other hand, to encourage a withdrawal of US $ forcing foreign investors to buy treasury bills.

We can consolidate loans that site at reasonable interest levels and the value of the US currency.

Foreign official investors are urged to buy federal debt to correct imbalances in portfolio investments affected by the financial crisis, support the US currency, avoid the $ value drop and preserve the value of their wealth. And this invitation will remain valid as long as the US will not be clear of the crisis.

Needless to say, if the US does not come out of the crisis, then this monetary mechanism inseparable from the credit revival policy will eventually become in action what it is already in power: a real quadrature of the circle. It is indeed all the mechanisms of growth in imbalances that are producing destructuring effects of which money is an expression.

The sovereign debt crisis may be hidden and creeping. It alone contains all the essential articulations of a crisis resulting from growth in imbalances. We understand that the Fed’s policy is at the junction of all these aspects of the crisis. The crisis is a depression whose economic expression is transformed as we change the instruments that displace the effects. Yesterday, support for banks and real estate, today blackmail available to the bankrupt to put pressure on these foreign creditors. The squaring of the circle that the Fed is trying to exploit by exploiting the currency again betrays the depth of the crisis.

The success or failure of the FED maneuver

The FED maneuver contains the risk of a failure caused by a major sovereign debt incident. The $ 1000B are here to answer whatever happens. One wonders if they are sufficient. This maneuver can turn to the advantage of the USA provided that it succeeds in a reasonable amount of time. A depression in the form of a slow crash would make it fail. And it is in this situation that America sinks.

So beyond an expensive FED maneuver what can happen? Return to protections whose FED maneuver is not exempt at least in the form of implicit blackmail. The $ 1000 purchase of Treasury bills appears to protect the US by threatening foreign assets. Escape in the inflation by finance in sight of the American economy through the dubious operations of the couple FED-Trésor? This is the current scenario with drift in addition. Note today the financing of the federal debt by the FED can afford to be moderately inflationary since there is a tendency to price deflation. And by deflation, we must not consider the level of commodity prices, we must also take into account the financial and real estate assets.

What is evident is that past a certain level of inflation and change in the value of the currency and the relative prices of exports (and imports), the American crisis has the potential to the order that was once established at Bretton Woods. The sovereign debt crisis – instrument and recovery problem – has an impressive depressionary bridging.