The Bond Market Wins
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A U.S. default is unlikely: As a demographically young nation, the United States will watch other nations face demographic crises years before it faces the full brunt of the same. The spectacle will furnish salient examples of the short-run shame and suffering caused by default. Further, the soft default of inflation demands the element of surprise, always difficult for politicians to engineer. But default is still possible, and the GOP offers a uniquely American path to default: An unwillingness to raise taxes. Bondholders the world over will be watching to see if “starve the beast” is a pathway to “default on the beast.”
Podcast related to this article: EJW-Mercatus Symposium Contributors On a Potential U.S. Debt Crisis (EJW Audio, January 2012).