Seneca finds that Niall Ferguson leaves deep drag marks.
I think we are going to get some defaults one way or the other. The U.S. is a different story. First of all I think the debt to GDP ratio can go quite a lot higher before there’s any upward pressure on interest rates. I think the more I’ve thought about it the more I’ve realized that there are good analogies for super powers having super debts. You’re in a special position as a super power. You get, especially, you know, as the issuer of the international reserve currency, you get a lot of leeway. The U.S. could conceivably grow its way out of the debt. It could do a mixture of growth and inflation. It’s not going to default. It may default on liabilities in Social Security and Medicare, in fact it almost certainly will. But I think holders of Treasuries can feel a lot more comfortable than anyone who’s holding European bonds right now. (emphasis added)
Such a change from his earlier position of doom, gloom and FUD. Comparing the US to Greece, Ferguson opined
The real lessons for the United States are clear. Those who run up debt in good times can borrow only so much more when a recession strikes. And heavily indebted governments postpone fiscal stabilization at their peril. If you wait to reform until the bond market calls time, you are—to use a technical term from economics—screwed.
Apparently he’s awakened to the facts: First, expansionary austerity is a myth; and second, the United States cannot go broke. Ever.
Ferguson really thinks that Congress will vote to repudiate Social Security bonds and any President will sign such legislation? I think he’s confusing the U.S. with his favorite neo-liberal economy, Chile during the Pinochet dictatorship.
Although many Republicans seem to yearn for an authoritarian future in which they can plant their boot firmly on the face of America, recent events indicate that we are headed in a different direction. Reneging on Social Security obligations would unleash a tsunami of political unrest that would make the current Occupy movement look like a ripple in a childrens’ wading pool.
As always, George Orwell is instructive on the nature of our immanent Baggertarian paradise…