tag:blogger.com,1999:blog-9208928.post2280372762901919817..comments2024-03-29T03:16:05.261-04:00Comments on Start Making Sense: Bruce Bartlett on the risk of a U.S. government debt defaultDaniel Shavirohttp://www.blogger.com/profile/14710628584922961682noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-9208928.post-66636881002273254622009-09-12T08:53:41.477-04:002009-09-12T08:53:41.477-04:00Well, my gut tells me that as an alternative to de...Well, my gut tells me that as an alternative to default we'll use one-off currency debasement as the traditional remedy of an over-leveraged society that gets to pay its bills in its own currency. <br /><br />All the FED has to do is fail to fail to completely mop-up the tsunami of liquidity it has created in response to this crisis.<br /><br />I can already hear the justifications trying to maintain central bank credibility and to keep future inflation expectations "anchored":<br /><br />"We had no choice but to create all this extra cash to save the economy - and it's profoundly difficult to clean it up later, you can't blame us for that. Yeah, we've inflated 25% over 4 years, but that's a one-time phenomenon - and now we have it completely under control again. <br /><br />Anyway, we were experiencing persistent imbalances with places like China (who, by the way, owned most of our foreign-held debt) and this has 'corrected' that problem. <br /><br />Furthermore, so many of our citizens were over their heads with debts (and we had guaranteed the survival of the banks) that this effect solved the house-price mortgage problem. So you see, future inflation is bad, and we'll prevent it. But this recent past hyperinflation was good! Get it?"<br /><br />Then again, many of our obligations are supposed to be paid out in real terms - Social Security is indexed to wage-inflation, and health care must be delivered in the form of actual drugs and medical services.<br /><br />At any rate, I prefer the "total public debt outstanding" figure of 12 trillion to the 7.5 trillion "debt held by the public" number as a better measure of our future obligations. We'll be at 500 billion in interest a year soon enough - about 1/30th of GDP.<br /><br />I wonder at what fraction interest to output causes countries to lose their ratings, or even what levels are typical of countries at the moment they decide to debase or default...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9208928.post-46680105774483678892009-09-11T16:14:40.245-04:002009-09-11T16:14:40.245-04:00Since, the link appears to be cut off, the paper i...Since, the link appears to be cut off, the paper is: "The Economic Crisis and the Fiscal Crisis: 2009 and Beyond"Anonymoushttps://www.blogger.com/profile/05956221158185191281noreply@blogger.comtag:blogger.com,1999:blog-9208928.post-37088346635538560402009-09-11T16:12:59.999-04:002009-09-11T16:12:59.999-04:00I suspect I may have been directed to the followin...I suspect I may have been directed to the following paper by this very blog but, in case not, I thought this would be of interest to your readership:<br /><br />www.econ.berkeley.edu/~auerbach/fiscal_future.pdf <br /><br />Figures 8 and 9.<br /><br />Very much enjoy your blog.Anonymoushttps://www.blogger.com/profile/05956221158185191281noreply@blogger.com