Destabilizing speculation

The Janus of Debt by Harold James

As the United States flirts with a default crisis again as Republicans balk at raising the national debt ceiling, and with public debt levels reaching new highs everywhere after COVID-19, questions about the role appropriate debt returned. The truth seems to be that the sustainability of government borrowing is as much a matter of politics as it is economics.

  • Markus K. Brunnermeier, The resilient society, Endeavor Literary Press, 2021.
    Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves and Kris James Mitchener, In defense of the public debt, Oxford University Press, 2021.
    Ludger Schuknecht, Public expenditure and the role of the state: history, performance, risks and recourse, Cambridge University Press, 2020.
    Tobias Straumann, 1931: Debt, Crisis and Hitler’s Rise, Oxford University Press, 2019.
    Adam Tooze, Shutdown: How Covid rocked the global economy, Viking, 2021.

PRINCETON – Debt is making headlines. The COVID-19 pandemic has forced a huge expansion in government borrowing, and bizarre fiscal rules setting a ceiling on public debt in the United States have left that country once again flirting with the possibility of sovereign default.

According to the law on books, $ 28.5 trillion in federal debt is too much. If Congress continues to insist on this position, the United States will exceed its debt limit this month and chaos will ensue. The world needs the US dollar to continue to function as a safe asset and as the foundation of a global payments system for cross-border transactions. There is new nervousness in bond markets around the world.

How much debt is too much? How do you know when consolidation is the right approach? And how should it be achieved? The division of views on such issues is perfectly captured in an anecdote of contemporary Britain in debt. Chancellor of the Exchequer Rishi Sunak believes that an overweight man with high blood pressure shouldn’t eat another burger. But Prime Minister Boris Johnson suspects another burger won’t make too much of a difference for a patient already in this condition.

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