Monday, March 7, 2011

Three Cheers for U.S. Public Debt

An increasing number of economists, historians, pundits, and politicians are expressing concern about rising U.S. public debt.  Either it will be inflationary, depreciate the dollar (and our living standards), or lead to large tax hikes.  None is a pretty picture.

But there is a bright side to large public debt, as expressed on CNBC on March 8, 2011, by Chicago Fed President Charles Evans.  The U.S. has the deepest and most liquid Treasury debt markets, which makes U.S. Treasuries a good choice for foreign governments and sovereign wealth funds to park money.  Other smaller foreign debt markets are less attractive.  This means we (the U.S. Treasury) will be able to sell debt as needed to fund the government and sustain economic activity (at least for the immediate future).

Good thing we didn’t pay off all our national debt during the Clinton budget surplus years, and we should thank President Bush and the Republican Congress for rebuilding the debt that makes U.S. Treasuries so deep and liquid.

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