Friday, October 11, 2013


Why it might be a good thing.

Today, there is a good chance that the U.S. government, like the state governments of the 1840s, will be forced to default on its explicit and implicit promises within the next few decades. Exactly how and when is less certain. But the fundamental and massive budgetary changes required to prevent a fiscal crisis are politically unimaginable. Perhaps only default can impose the necessary fiscal discipline.
 Jeffrey Rogers Hummel

Why China Scolds US on Currency Devaluation

If the dollar is no longer the pre-eminent reserve currency, then countries will dump much of their dollar holdings, pushing down its value in currency markets. A lower-valued dollar will cause exports to soar and imports to plummet, creating millions of new manufacturing jobs. Millions more jobs would be created in other sectors due to the multiplier effect. This could well bring us back to full employment -- a goal we may not otherwise achieve until the next decade.
 Dean Baker

 A Balanced Budget

When the government spends more than it takes in, it must borrow to cover the cost.  In times of national emergency, that ability to borrow on the nation's credit is a good thing.  The government can no more live perpetually on credit than you can and borrowing has become the defacto standard for operating our government.  It can not go on forever.

A default would increase the costs of borrowing money to operate the government.  While that isn't necessarily a good thing, it is better than the alternative of perpetual borrowing.  Sooner or later, having squandered the nation's credit away, the party must and will come to an end.  This end can come about in one of two ways. 

1. The government can balance it's budget, or maintain debt at a reasonable level of its own accord.

2. The lenders can either increase the cost of borrowing until it becomes unfeasible to do so, or stop lending (buying our debt).

Most would agree the former is greatly preferable to the latter, for if the latter arises the country would be unable to borrow in cases of national emergency.  One way or another the borrowing will come to an end.  The only question left now is how.  

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