Responding to Fiscal Crisis in America

The Congressional Budget Office (CBO) recently published a report in which available responses to the fiscal crisis in America are detailed. Specifically,

If a fiscal crisis occurred in the United States, policy options for responding to it would be limited and unattractive. In particular, the government would need to undertake some combination of three actions: restructuring its debt (that is, seeking to modify the contractual terms of existing obligations); pursuing inflationary monetary policy (that is, increasing the supply of money); and adopting an austerity program of spending cuts and tax increases.

The essence of the CBO's proffered solutions to a fiscal crisis can be summarized as default, monetary expansion, or austerity. In the end, each of these options eventually leads to inflation, albeit with varying degrees of deflation either in advance or along the way. In other words, a period of inflation in America is imminent. I continue to advise the public to get ready...

Source: Federal Debt and the Risk of a Fiscal Crisis (2010, July 27), Congressional Budget Office.

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