Monday, March 01, 2010

Two articles on the future of U.S solvency:

Eternal optimist Fareed Zakaria is being politically naive:
So, [deficit] problem looks unavoidable, but also insoluble. Remember, though, that America has a $14 trillion economy that was, until recently, growing quite fast. We can find ways to address even this challenge. Here are three simple proposals that would defuse the debt bomb, with money to spare... Each of these policies could be phased in so that the timing is right. They could be pared back, especially if other savings and reforms are enacted. (Currently, tax breaks and deductions cost the government $1.1 trillion a year.) But just these three fixes would place the United States on a firm fiscal footing, leaving it with ample resources to invest in research, education, infrastructure, alternative energy, and whatever else we want.
Niall Ferguson's ominous words:
Neither interest rates at zero nor fiscal stimulus can achieve a sustainable recovery if people in the United States and abroad collectively decide, overnight, that such measures will ultimately lead to much higher inflation rates or outright default. Bond yields can shoot up if expectations change about future government solvency, intensifying an already bad fiscal crisis by driving up the cost of interest payments on new debt. Just ask Greece. Ask Russia too... Washington, you have been warned.

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