When Will America Face Its Fiscal Crisis?
Bruce Bartlett, 05.21.10
Forbes
Like most economists, I ascribe completely to Herb Stein's Law: Trends that can't continue don't. Unfortunately, Mr. Stein neglected to add any corollary about what exactly causes unsustainable trends to end. Given that almost everyone now agrees that the national debt is on an unsustainable course, knowing exactly how and when that unsustainability will come to an end is critically important.
Many doomsayers believe that our fiscal profligacy will end in a bang, as happened recently to Greece and previously to many other countries. However, it's very unlikely that the U.S. would ever suffer the sort of abrupt inability to sell its bonds that triggered a fiscal crisis in other countries.
Historically, the principal cause of debt crises is that countries have borrowed in currencies other than their own. Their problems had less to do with debt per se than a decline in their currency, which made it difficult or even impossible for them to obtain the foreign exchange necessary to service their debt. This cannot be the trigger for a debt crisis here because all of our debt, including that owned by foreigners, is denominated in dollars, of which we have an unlimited supply.
Nevertheless, many people worry that the Treasury may default on the debt. But this can only happen in the event that Congress fails to raise the debt limit, which would be a legal constraint on its ability to borrow, not one imposed by markets. There are several reasons why the U.S. cannot default on its debt the way private business and individuals and foreign countries can.
(More here.)
Forbes
Like most economists, I ascribe completely to Herb Stein's Law: Trends that can't continue don't. Unfortunately, Mr. Stein neglected to add any corollary about what exactly causes unsustainable trends to end. Given that almost everyone now agrees that the national debt is on an unsustainable course, knowing exactly how and when that unsustainability will come to an end is critically important.
Many doomsayers believe that our fiscal profligacy will end in a bang, as happened recently to Greece and previously to many other countries. However, it's very unlikely that the U.S. would ever suffer the sort of abrupt inability to sell its bonds that triggered a fiscal crisis in other countries.
Historically, the principal cause of debt crises is that countries have borrowed in currencies other than their own. Their problems had less to do with debt per se than a decline in their currency, which made it difficult or even impossible for them to obtain the foreign exchange necessary to service their debt. This cannot be the trigger for a debt crisis here because all of our debt, including that owned by foreigners, is denominated in dollars, of which we have an unlimited supply.
Nevertheless, many people worry that the Treasury may default on the debt. But this can only happen in the event that Congress fails to raise the debt limit, which would be a legal constraint on its ability to borrow, not one imposed by markets. There are several reasons why the U.S. cannot default on its debt the way private business and individuals and foreign countries can.
(More here.)
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