Felix Salmon links to Gillian Tett, who: has an interesting column today on the degree to which “social cohesion” determines whether or not a country in fiscal difficulties will end up defaulting on its debts. The Japanese, she says, are used to the idea of sharing the pain, and would probably not tear themselves apart should the country have to make painful fiscal cuts in order to remain current on its obligations. (Besides, given that 95% of Japanese government bonds are held domestically, a default would probably cause even more pain among the population as a whole.)
On the other hand, says Tett: the US is used to growing its way out of problems: In the US, the government has less experience of dividing up a shrinking pool of resources. Instead, in a land built by pioneers, Americans prefer to spend time thinking about how to make the pie bigger – or to find fresh frontiers – than about making shared sacrifices.
This could be telling as to what is the preferred course of action for the US. In order to grow the economy, a strategic default of some kind on old debt is in order. Of the various options, the most strategic seems to be to inflate away the debt. No politically painful budget cuts or tax increases. Just pure unadulterated GDP growth, via hyper-inflation. And as to strategic default, it has lately been growing as an acceptable and viable option, not just for businesses, but for individuals and governments as well. If businesses do it all the time, why not others, and I am starting to be more open-minded about this. Now pass the kool-aid