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 Richmans' Trade and Taxes Blog

Debt and American Power
Jesse Richman, 12/6/2010

In the recent issue of Foreign Affairs, Roger Altman and Richard Haass argue that growing government debt poses a serious threat to American power by increasing American vulnerability to sudden currency devaluation.  The United States must move to put its fiscal house in order, or face a sudden sharp loss of power and prestige in the future as financial markets lose faith in the capacity of the American government to pay its debts.  Paul Krugman's column in Monday's NYT also addresses debt, arguing that the President should allow the Bush tax cuts to expire. 

In Washington, however, the current move towards compromise appears to be one in which both parties agree to the policies they prefer that increase the deficit.  In the short term this can arguably be justified, but in the longer term, there are risks.  From the New York Times:

"The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing the nation’s long-term fiscal imbalances."

Apparently the hopes voiced by Altman and Haass that the government would take steps to move back from the fiscal brink have not been fulfilled so far.  Is either party credible in its claims to want to reduce the long term fiscal imbalance?

Comment by frasmus, 12/28/2010:

We are riding a runaway train consisting of a debt-based monetary system, fiat currency, and Keynesian policies. The actions that would correct the abuses are not politically feasible. Arguing about tax cuts vs tax increases is like re-arranging the window dressing while the train rockets it's way off a cliff. May you live in interesting times.