Who Will Bail Out The Bail Out Men?
May 27, 2010
Some links:
- David Einhorn, of I’ll publicly short Lehman fame, writes in the NYTimes: “At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?”
- Hedge Fund manager Hugh Hendry breaks lances with Jeff Sachs on the Beeb: “I would recommend you panic. The European banking system is in a crisis.”
- The Lending Merry Go Round, via Greg Mankiw.
In case you missed it, Michael Strong recently wrote about democratically encouraged bankruptcy for profit here.
2 Comments
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“At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?”
I don’t think they care. They can never default since expanding the money supply is as easy as flipping a few bits in a computer. In that sense, the debt and deficit are irrelevant. Fiat money doesn’t depend on “confidence” nor on anything else, so long as a government can enforce its taxes and does not voluntarily default. The trade deficit is also irrelevant in a sense, because China, Japan, and others sent over plenty of real goods in return for relatively worthless paper. The Americans have benefited greatly from trade deficits in that sense.
However, there is an issue of how many real resources you want to allocate to social security, to medicare, etc…. and how stable the economy will be in light of all the interventions and in light of the future willingness of China/Japan/etc…. to continue to ship real goods over in exchange for paper.