Concern of US, Japan Default Spreads


Inquiring minds look east yet again today where there is growing concern that both the U.S. and Japan will default. Economists fear a sovereign default are “manifest” in Europe and will soon spread to both Japan and the U.S. as governments everywhere struggle to control deficits:

“Despite the recent drama, we believe we have only seen the opening and second act, with the rest of the plot still evolving,” London-based Buiter and colleagues wrote in a research note published today. “There is absolutely no safe” sovereign.

The warning comes after the threat of default forced Greece and Ireland to seek bailouts and as borrowing costs for Portugal this week surged at a six-month bill sale as investors speculate it will be next to seek aid. Elsewhere, U.S. lawmakers last month extended tax cuts and are now wrangling over whether to raise the nation’s debt limit, while Japan’s public debt is set to exceed twice the size of the economy this year.

“The U.S. and Japan likely cannot continue to ignore the issues of fiscal sustainability,” said the Citigroup economists, who added that it’s “only a matter of time” before the U.S. government can only fund itself through debt issuance at “significantly higher interest rates.”

In another report, by JPMorgan, contained some startling concerns:

In a separate report also published today, JPMorgan Chase & Co. economist David Mackie said there is concern that if Spain seeks help “the current arrangements will not be able to contain the crisis” and that doubts about whether debt sustainability can be achieved without restructuring would linger and contagion could spread to Italy and Belgium.

“If that were to happen, euro-area policy makers would need to enlarge the current facilities,” said Mackie, noting that could involve moving to a system of debt guarantees and reducing the borrowing costs on the emergency cash.

Who spells PIIGS with a “B”? Did you notice in the quote above that a new country has entered the stage? Belguim is now officially being watched.

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