Is the United States on a certain path toward a debt crisis? And if so, at what point will it strike? Economists disagree on the details, but the best answers we have to these questions right now are: “It sure looks that way” and “sooner or later…probably.” In a recent paper, the Mercatus Center’s Arnold Kling attempts to describe just how uncertain the workings of debt markets sovereign and otherwise actually are, says Reason Magazine.
The trigger point for a debt crisis is not quantifiable. This is often true even in the case of private debt, such as a credit card balance. What should be the trigger point at which your bank disallows use of your credit card? The fact that different people may respond differently under similar circumstances poses an analytical challenge for the bank, says Reason.
Yet despite the warnings, Kling notes that “international capital markets continue to treat U.S. Treasury debt as a fairly safe asset.” Why? In his paper, Kling suggests that it may be that “investors expect the United States to take steps to get its fiscal house in order,” an assumption, he says, that is “based more on hope than on recent experience.” Given the political disincentives to making the sort of policy moves necessary to stabilize our debt, it’s not the safest assumption, says Reason.
Source: Peter Suderman, For Certain Is Debt for the Born, Reason Magazine, August 30, 2010.
For text: http://reason.com/blog/2010/08/30/for-certain-is-debt-for-the-bo
For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17
First published by the National Center for Policy Analysis, United States
FMF Policy Bulletin/ 14 September 2010
