In a story on reality creeping into the Cheerleading Nitwits Bubble Channel, Michael Panzner links this video of Kenneth Rogoff being interviewed by Keynesian Kool-Aid drinker Steve Liesman.
Bottom line is that countries default all the time. And the United States defaulted in 1933. I found the history of that default in American Spectator fascinating. The U.S. had issued bonds with the explicit promise of gold backing. Then when the debt burden got too difficult, FDR and Congress decided to unilaterally violate the gold clause, devalue the dollar, and pay people off in cheap paper money instead of the gold-convertible sound money they had been contractually promised. If that's not default, I don't know what is.
Now this time around, the government won't have to legally default, because they never promised current bondholders that dollars would be exchangeable for gold or worth anything at all. They can print a one-trillion-dollar bill and ship it to China marked "paid in full." It's not a legal default, but it might as well be, because bondholders get back something that's worth far less than what they paid for the bonds.
Default by inflation is no picnic. It risks hyperinflation, which always causes social unrest, sometimes civil war, and occasionally genocide. And even if hyperinflation is avoided, moderate inflation is brutal on the working class and the elderly, as their wages and savings can't keep up with the rising cost of living.
But just because default by inflation isn't pretty doesn't mean it won't happen. That is the path we're on. Consider that before you shrug off the significance of trillion-dollar deficits as far as the eye can see.
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