Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Monday, June 28, 2010

U.S in a Severe Sovereign Debt Crisis

As near as I can tell, the crux of the argument for austerity and against stimulus is that the fear of inflation - or in more radical versions of the argument, HYPERINFLATION - will put the U.S in a position where it cannot service it's debt, borrowing becomes prohibitively expensive, and we go down in a flaming ball of socialistic spending-based economic disaster.

That is why, over the last 20 years, as the value of the dollar has dramatically declined against better currencies, the cost of borrowing has gone up so dramatically.

Oh, wait a minute . . .

H/Ts to those Keyneseian clowns, Krugman and Delong

Update: For a clown, PK sure has a lot of serious stuff to say on this issue.

Wow.  Are we screwed, or what?

1 comment:

BadTux said...

The notion that federal borrowing is taking money away from the economy, when real interest rates on short-term Treasuries is 0% and long-terms aren't much higher, doesn't even begin to pass the laugh and giggle test. All that federal borrowing is doing at the moment is moving some of the money currently residing under (virtual) mattresses and shoveling it back into the economy. That's all. Indeed, given the dire flow of funds data, which shows yet more money flowing into the Fed as reserves (i.e., as "mattress money"), arguably we need to be borrowing *more* money as a nation until we start seeing interest rates on Federal bonds nudge up. Then, and only then, will we know we've moved sufficient money out from under mattresses into the real economy to spoil the deflationary spiral that encourages putting money under mattresses.

Will this happen? Well, no. As Krugman points out, we're in the thrall of "an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times." Funny how people who propose austerity always propose it for *other* people, not for themselves, eh?

- Badtux the Economics Penguin