The Great Default–Inevitable Consequences

Conclusion: “By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.” This is true. It lies at the heart of the mess we are in.

….The FED tried to unwind over the last 12 months. They do not mention this. The result: the FED’s panic return to QE3. There will be no unwinding.

The Great Default is a critique of this Wall Street Journal article:”The Magnitude of the Mess We’re In.”  An importnat read.

I welcome readers to explain how unfunded liabilities (Medicare, Social Security, Pensions) will NOT be defaulted on.

2 responses to “The Great Default–Inevitable Consequences

  1. Is it possible not to default on those unfundend liabilities again by printing money? Or are those liability based on real interest rates and not nominal ones?

    What would happen in your opinion if the US really defaults and loses its international credibility?

    (By the way, it was really interesting to learn that the FED is funding a great part of the debt. I did not know that…)

  2. Of course, printing money is theft because you are repaying nominal liabilities in depreciating currency units. Some liabilities like Soc. Security are indexed to the CPI. Also, long-term rates will rise.

    See my upcoming post on hyperinflation.

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