The Fonzie-Ponzi Theory Of Government Debt
07/19/2018
Before reaching this chapter or even picking up this book, I imagine many of you were already loosely divided into the two major camps of the public debt debate.
The first camp is already concerned and doesn’t need my research to form an opinion. These people stress the math involved in borrowing - the idea that you get do extra stuff today, but you have to somehow pay for it in the future.Meanwhile, those in the other camp ask, “So what?” They might argue that America will make good on its debt because “it always does.” Or they’ll point confidently to America’s unique advantages as a military superpower, paragon of political stability, and steward of the world’s predominant reserve currency. Confronted with the lessons of history, they’ll say, “This time is different.”
But what exactly is it that may or may not be different? It’s important to draw a distinction between two concepts of debt limits:
- The Fonzie–Ponzi transition. At what point does it become virtually certain that a debt problem won’t be resolved without a credit event?
- The Keynesian endgame. At what point does the ability to bear more debt break down completely and actually trigger the credit event or hyperinflationary money printing?
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