Growls

Many Washington Post readers may have dropped their newspaper in their cereal after they turned their eyes to read the title of Robert J. Samuelson’s column this morning, which carried the same title as today’s Growls. He writes the idea that “a major advanced country would default on its debt . . . was, until recently, a preposterous proposition.”

Samuelson says the thought the U.S. could go broke is “still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?”

Samuelson draws parallels between the U.S. situation and others such as the fiscal conditions in Japan. He concludes with the following:

“But containing debt by spending cuts or tax increases would involve wrenching and unpopular measures that might, perversely, weaken the economy and worsen deficits. In Japan, the existing value-added tax (national sales tax) of 5 percent would have to go to 12 percent, says JPMorgan, along with deep spending cuts. Against choices like that, some advanced country might decide that a partial or complete default, though dire, would be less damaging economically and politically than the alternatives.

“Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both. The odds may be against a wealthy society tempting that fate, but even the remote possibility underlines the precariousness and the novelty of the present situation. The arguments over whether we need more "stimulus" (and debt) obscure the larger reality that past debt increasingly constricts governments' economic maneuvering room.”

Mark your calendars to read Samuelson in every Monday’s Washington Post. Here is his archive where you can find such gems as last week’s “Public Plan Mirage.”