In Our Annual Report, Learn about the Sovereign Debt Crisis

ST. LOUIS – “Sovereign debt crisis” is a familiar phrase these days, not just for reporters and policymakers, but the public in general.  Many people, however, probably feel as if they don’t have the “big picture” view of this issue, despite the intensive coverage of daily.

If you want the “big picture” – and want it quickly – watch a 10-minute video called “Sovereign Debt: A Modern Greek Tragedy” from the St. Louis Fed.  It captures the highlights from an essay by the same name in the just-released annual report from the Bank. Among other things, you will learn:

• Why the debt of national governments is referred to as “sovereign” debt.
• The main reasons governments historically have taken on huge debts. (Think wars.) 
• How defaulting on government debt has been common throughout history. (Spain alone defaulted eight times in the 19th century.)
• The roots of today’s crisis in Europe. 
• Why the markets for too long lent money to Greece and other weak economies of Europe at the same favorable rates given to Germany and other more-stable economies.
• What all this means for the United States.

Also in the annual report, St. Louis Fed President and CEO James Bullard calls the European sovereign debt crisis a wake-up call for the U.S.  A credible plan to reduce the deficit and total debt of the U.S. is needed sooner rather than later, he writes.  If we wait until a crisis occurs, “fiscal austerity might be the best of many unappealing alternatives.”

To watch the video, read the essay or look at the entire annual report, go to stlouisfed.org/ar.  A Spanish translation of the essay is also available there, as are the Bank’s financial statements.