Great CNBC interview (click for video) with British historian, Niall Ferguson.  It’s worth the 5 minutes of your time.  We’re amazed how well Ferguson understands the global economy and articulates the risks better than many trained economists.   Money quotes:

“There are more of those (sovereign debt 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…

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…

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.

“Liquidity” is an elusive concept and hard define.  Many argue that the U.S. monetary base, ante-QE2,  is not growing and money supply growth is, at best, tepid.  As a result,  the recent spike in Gold, commodities, and other financial assets is not warranted.

In a global context, however,  the displacement of capital (John Bull can stand many things, but he can’t stand two zero percent) because of G3 zero interest rate monetary policy is creating massive liquidity abroad as foreign central banks print local currency to purchase the excess supply of dollars.   QE2 will validate the recent market action, growing the monetary base and flushing capital out of long-term bonds into _____ .  Fill in the blank.  The markets will need a heavy dose of dramamine if there is any upset to QE2.   Stay tuned.