December 10, 2008

A debt’s maturity profile might be much more important than its amount.

Sir I do know how to interpret a Britney Spear “oops” but I hope it does not carry the same meaning for Martin Wolf “The eurozone depends on a strong American recovery” December 10. If indeed Wolf is now surprised by the existence of European sovereign credit risks then he has clearly been writing much too close to the trees and needs urgently to step back so as to get a better look at the forests.

Having said that what I really wanted to comment on is when Wolf writes “It is possible to imagine a ´sudden stop´ on higher risk sovereigns bonds. That would force the debt to become short-term – a classic route to a crisis” and this is clearly another very real risk. In this respect, an insistence by the US Treasury to try to collect on the benefits that a drop in long term rates could have reviving the housing market, by buying back longer term bonds and as a consequence shortening the maturity profile of the US public debt, is exposing the US, and us, to some very dangerous risks.