[T]he effect of S&P's decision is certainly political and S&P's move has to be taken seriously simply by virtue of the fact that, despite its cataclysmic failures in recent years when it came to rating subprime mortgages, Wall Street still relies on the rating agencies. And a downgrading of the U.S. sovereign debt, however unlikely, would impinge on the country's ability to borrow at low prices.In other words, lefty economists' response to the Federal budget imbalance is "don't worry, be happy."
Perhaps the most important thing to keep in mind is that, as James Fallows pointed out in the Atlantic (citing economist James Galbraith), the U.S. can print its own money, and the cost of doing so is less than the cost of default.
Somehow, I'm not comforted.
3 comments:
Roy said:
The cited response bothers me most because it denies the First Law of Thermodynamics. Eventually that denial will bring disaster. Votes can't trump physics.
You are right to be uncomfortable. What Fallows and Lennard - and to a lesser extent Galbraith - are saying is "there remains a solution that screws the citizens via inflation, but protects the government from defaulting."
Inflation will bring disaster. But "citizens" sometime can be fooled into thinking they benefit (because their mortgages go away). But I, for one, remember how bad the 1970s were for middle class (and lower quintiles), and have no desire to return. Writers for Salon, alas, are too young to remember Carternomics. And AVI is right that the progressive mentality today prioritizes preserving government over preserving the poor.
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