June 23, 2011
The NYT ran an AP article on the new long-term budget projections from the Congressional Budget Office (CBO) that began:
“The national debt is on pace to equal the annual size of the economy within a decade, levels that could provoke a European-style crisis unless policymakers take action on the federal deficit, according to a report by the Congressional Budget Office.”
This is not true. The CBO report did not warn of “a European-style crisis.” The reason it did not is that a European style crisis does not make sense in the context of the United States. The United States can never be like Greece or Ireland for the simply reason that we print out own currency.
In the event that we actually ran up against serious constraints in credit markets the United States would have the option to have the Fed buy up its debt. Greece and Ireland do not have this option. This could create a risk of inflation, but there is not the risk of insolvency that euro zone governments face.
The economists at CBO know the difference between the United States and the euro zone countries, which is why they did not make the comparisons attributed to them in this article.
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