Potential U.S. Government Default
Ip also considers whether the U.S. might resort to inflation rather than default in a fiscal crisis, pointing out that Russia in 1998 is just one recent example of many where governments chose debt repudiation over inflation. He however overlooks an even stronger argument. Now that the Fed is paying interest to banks on their reserves, it effectively eliminates much of the remaining revenue (seigniorage) from inflation. Increasing the monetary base is now just an alternative way of issuing government debt.
Meanwhile, Senator Tom Coburn (R-OK) said the following on the floor of the US Senate on Sunday, January 11th:"I believe we are at the ultimate tipping point in this country. I believe if we don't make drastic changes over the next year and a half, that 2012 will see the default of the U.S. Government on its bills. I honestly believe that. There are a lot of economists who agree with me on that point." Full text and video is available here.
Hat Tip: Marc Joffe
comments powered by Disqus
Bill Woolsey - 1/17/2009
It's supply and _demand_.
Other things being equal, an increase in the supply of money raises the price level.
Base money has doubled over the last few months. But the Fed is now paying interest on it, and interest rates on short term goverment bonds are expremely low.
What usually counts as the money supply is up sharply over the last couple of months (though not close to doubing.) However, there is a large increase in demand for insured bank deposits. The M1 and M2 measures of the money supply include lots of those.
To some degree, the "flight to quality" has been an increase in teh demand for money.
David T. Beito - 1/16/2009
It is surprising that price increases in the CPI haven't kicked in despite the massive increase in the money supply.
- More Doubts, Opposition To Sale Of Unique, Hartford Collection Of Political History
- How the Curse of Sykes-Picot Still Haunts the Middle East
- Kennewick Man Will Return Home to Native American Tribes
- Now it’s the University of Louisville’s turn to remove a Confederate statue
- A fortress built by Alexander the Great after he conquered Jerusalem has been discovered
- Liz Covart amazingly popular podcast helps her audience understand early American history
- Justus Rosenberg is still teaching at age 95
- Glenda Gilmore chides Yale for deciding to keep the name of Calhoun
- The historian and cartographer Bill Rankin has developed a new way to visualize slavery
- Paula S. Fass says young Americans need required national service