Tuesday, July 6, 2010

Niall Ferguson: US Will Default on Social Security and Medicare, Full-On Debt Crisis if Obama Heeds Paul Krugman

Krugman's advice for another massive "stimulus" by the Obama government, that is.

"The outlook: "Is it going to be inflation or is it going to be default. Right now there is no sign of inflation. We have monetary contraction at an alarming rate, and zero inflation in terms of core CPI, so the option of inflating this debt away doesn't seem to be there right now. What you are left with is therefore default. And I think it is a fair bet that US will default at least on the unfunded liabilities of Social Security and Medicare at some point in the foreseeable future.

"What the Greeks discovered you are fine until you are not fine with the bond market and if you have a non-credible fiscal strategy of borrowing a $1 trillion a year for the rest of time, never ever again running a balanced budget, at some point the markets are going to get spooked.

"Nothing would spook the markets more than for Paul Krugman's advice to be accepted by the Obama administration, and for you and I to be reading tomorrow's papers' headlines "Massive fiscal stimulus promised by the US government". That might well be the trigger."


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