January 21, 2011
The NYT reported in some detail on the plans by conservative Republican House members for large spending cuts. The piece included several comments from Republican members saying that the country was on the edge of default.
It would have been helpful to point out that there is zero evidence to support this contention. Bond holders are willing to hold U.S. government debt at extraordinarily low interest rates. This means that investors who have tens of billions of dollars at stake do not share the concerns about the government’s solvency expressed by these members of Congress.
It is also worth pointing out that the United States would never be in the same box as Greece or Ireland, as asserted by one of the representatives quoted in the article. Since the United States has its own currency, it can always have the Federal Reserve Board buy its debt. This can create a risk of inflation (in the current economic environment this risk is near zero), but there is no possibility that U.S. debt will lack buyers, as was the case with Greece and Ireland.
In other words, this is a totally imaginary threat, like the prospect of Martians invading. It is possible that members really fear an attack from Martians, but responsible news reporting should point out that there is no basis in reality for such fears.
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