Bartlett on Treasury Default
Bruce Bartlett has recently attacked advocates of a U.S. debt default, including yours truly. His article even got a favorable plug from The Atlantic Online. For someone who used to be a libertarian, he is awfully contemptuous of those opposed to increasing the federal debt limit.
David Henderson comments here.
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Mark Brady - 6/24/2010
Thank you for your thoughtful reply. Upon reflection, I think you're correct in saying that repudiation of the public debt is often considered as default.
However, I suggest that for some purposes a distinction may be usefully drawn between default and repudiation. Specifically, I think there is a useful distinction to be drawn between a government that fails to meet interest payments on the debt because their revenue sources have dried up and a government that refuses to make these payments because they choose not to do so despite having the resources to do so.
Likewise, I think there is a useful distinction to be drawn between a government that fails to roll over debt because it can't find willing lenders and a government that repudiates its debt despite people being willing to lend.
Jeffrey Rogers Hummel - 6/23/2010
I've never understood the term "default" to be confined to something forced upon a debtor, but perhaps I am mistaken. A homeowner who stops making his mortgage payments out of pure cussedness seems to me to have defaulted, at least according to the dictionaries I've consulted, and I can think of historical cases of governments defaulting although not forced to do so by any outside events, much less by pressure from creditors. Wouldn't you consider a student who just stops paying off her student loan, despite having enough money to do so, as defaulting? In the broadest sense, I believe the term "default" includes any failure of a debtor to pay, including a total repudiation. In the narrower sense, it includes all failures to make payments, for whatever reason, short of total repudiation of the debt.
As you know, I favor total repudiation of all government debt (national, state, and local), and by extension any partial repudiation or default, whether forced or not. By my reading, the U.S. Constitution poses no limits on this, but I wouldn't care if it did. I've actually considered some of the consequences of U.S. default in a past Liberty & Power post that Bartlett links to.
Mark Brady - 6/22/2010
Jeff, I hope this doesn't come across as nit-picky, but how could someone be an advocate of debt default? Certainly one might welcome debt default if it were to occur, but by definition default is something that is forced on the debtor and is not freely chosen by the debtor. One could, however, be an advocate of debt repudiation. Do you believe the Federal government should repudiate the Federal debt? What are the constitutional limitations on this? How would the Federal debt be defined? And what would be the consequences if the U.S. government were to repudiate its debt?
Allan Walstad - 6/21/2010
Well, I'd draw some distinction between the already-accumulated debt versus the unfunded future liabilities. The latter could be reduced by holding a lid on benefits. But as to the debt already accumulated, is it not likely to be pushed way down in real terms by inflation, rather than simply refusing to pay when the securities come due?
Eric Hanneken - 6/21/2010
Yes. Jeff Hummel doubts it:
If the double-digit inflation experienced by the U.S. during the 1970s covered no more than 2 percent of central government expenditures, imagine the hyperinflation that would be necessary to cover even a two-thirds increase in total federal expenditures, a conservative projection of what current Social Security and Medicare benefits would require over the next half century. Central bank independence, moreover, permits the Fed to isolate the dollar from such a fiscal crisis. And given a choice between only default on its debt, and both default on its debt and collapse of its currency, I expect the Treasury and the Congress would gratefully acquiesce.
Allan Walstad - 6/21/2010
Does anyone doubt that this debt will be inflated away?