After a few days to think about it, I see no reason to change the opinion I formed after I first created this blog: In the long run, a US debt default would be no big deal, and not just because it would quickly be fixed up. (I am not talking about a scenario like a political decision by the US to default indefinitely, because that is an idle fantasy. Isolationist or anti-globalist American nationalists may sometimes advocate such scenarios, but they have no access to power.) The real issues are longer-term matters like the global status of the US dollar, the US balance of trade, and so on.
I'm not saying a default will never happen. In fact, a default brought about by a political game of "chicken" would be entirely consistent with the American tendency to produce embarrassing, headline-dominating spectacles which fill the world media for a few weeks or months and then vanish, mostly to be forgotten. And as Geithner said in his letter, such a default would have consequences: it would make borrowing more onerous (more expensive) for the US government. (For those who want the US government to stop borrowing so much, this is not an argument against risking default.) But a US Debt Default would not equal End Of The Economic World or even End Of American Hegemony. It would be just another spectacle, just another signpost, just another milestone on a long eventful journey dominated more by the subliminal trends which escape notice but build up over time, than it is by the passing scenery you can see at any single moment.
Thursday, May 19, 2011
Saturday, May 14, 2011
the public debt of the United States of America
Hello world. I created this blog because I want to know how likely a US government debt default is, and what the consequences might be.
One spur to the blog's creation was a post by Daniel Drezner mocking the very idea of a default. And yet here is US Treasury Secretary Tim Geithner saying that a default could occur if the US doesn't raise its statutory debt ceiling.
The adversarial nature of US politics makes it very conceivable that the legislators will one day fail to cut a deal in time to avoid hitting the ceiling. So, what happens then - a brief default lasting only a few days, an emergency deal which permits the resumption of interest payments, and then life goes on as before, with no real change? Clearly there must one day come a time when the US starts to reduce its federal debt; let's suppose that we do get to that point without a significant debt-default crisis. How far away is that point in time? For how much longer will the US be willing to increase its debt burden; for how much longer will it be able to borrow on terms that it finds acceptable?
One spur to the blog's creation was a post by Daniel Drezner mocking the very idea of a default. And yet here is US Treasury Secretary Tim Geithner saying that a default could occur if the US doesn't raise its statutory debt ceiling.
The adversarial nature of US politics makes it very conceivable that the legislators will one day fail to cut a deal in time to avoid hitting the ceiling. So, what happens then - a brief default lasting only a few days, an emergency deal which permits the resumption of interest payments, and then life goes on as before, with no real change? Clearly there must one day come a time when the US starts to reduce its federal debt; let's suppose that we do get to that point without a significant debt-default crisis. How far away is that point in time? For how much longer will the US be willing to increase its debt burden; for how much longer will it be able to borrow on terms that it finds acceptable?
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