Monday, August 2, 2010

How Dangerous is the Growing U.S. Debt?

A research paper by Congressional Budget Office analyst Jonathan Huntley provides an excellent overview of the current dangers of the growing U.S. debt. His paper will cause you to want to go out and short long-term bonds ASAP.

One caveat in his paper, though, is that as examples of countries that have recently experienced fiscal crises, Huntley includes Ireland and Greece. Both these countries do not control national money printing activities, since they are part of the EU and use the euro. In the U.S., with its own central bank, the Federal Reserve, the U.S. can print its way out of any debt crisis. This, of course, would be highly inflationary. Huntley covers money printing as a possible consequence of a U.S. debt crisis, but it should be emphasized as more of a likely option than Huntley does.

The paper, overall, covers it all. From the inflationary aspects of money printing, to the crowding of borrowing by the private sector because of increasing government debt to the potential for soaring interest rates.

Read the paper here (PDF)

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