Economic Historian Says Debt Crisis Will Hit Japan, U.S.

ForexNewsNow | Published on October 13, 2010 at 11:36 am

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Niall FergusonNEW YORK (Forex News Now) – In an announcement that could be foreshadowing global forex news over the next year, a Harvard University professor has claimed that the sovereign debt crisis that began in Europe isn’t over and will spread to Japan and then the United States.

Niall Ferguson, the Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School, revealed that he believes the sovereign debt crisis that flared up in Europe has yet to run its course and will inevitably lead to either inflation or default.

“There are more of those [sovereign debit crises] to come and, ultimately, it is going to come to Japan and the United States. And those crises of sovereign debt will be the big story.”

Commenting on whether inflation or default will occur, Ferguson added, “It just depends on whether you borrow in your own currency, in which case is probably going to be inflation; or someone else’s, in which case is probably a default.”

Ferguson further claims that quantitative easing measures anticipated from the U.S. Federal Reserve as early as November will not help.

“All that liquidity ends up not where it is supposed to be, which is magically creating jobs for American workers in Michigan. It doesn’t do that at all.  It ends up pumping up commodity prices on the other side of the world, with lots of unforeseen consequences.”

Rising euro zone debt

The global forex news that has come from Europe over the past nine months continues to impact the global economy as markets see the ongoing consequences of the debt crisis periodically arise.  The afflicted economies in the euro zone – namely, Portugal, Ireland, Italy, Greece, and Spain – continue to struggle with rising debt that is either inspiring austerity measures or adding to the growing deficit.  Even though promising news has emerged lately, the crisis is still unresolved and could spread to Japan and the United States next.

Ferguson also commented that the combination of American and Chinese monetary policy is actually creating upward pressure on other currencies across the globe, pointing specifically to South Korea and Brazil’s struggles with a rising currency that mirror what is occurring in Japan with a strong yen.

If Ferguson is correct, unsettling global forex news could be forthcoming over the next year, beginning with any stimulus measures enacted by the Federal Reserve in November.  In that case, the market’s reaction to the news – likely to be negative for the dollar – could be a continuation of a deeper downward trend for the beleaguered currency, with no upside in sight.



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