Monday, October 07, 2013

No Risk of Default

My Harvard colleague Martin Feldstein writes me in an email:
The WSJ and FT continue to write about the risk of default, quoting the Treasury, Boehner and others.There really is no need for a default on the debt even if the debt ceiling is not raised later this month. The US government collects enough in taxes each month to finance the interest on the debt, etc. The government may not be able to separate all accounts into "pay" and "no pay" groups but it can certainly identify the interest payments. An inability to borrow would have serious economic consequences if it lasted for any sustained period but it would not have to threaten our credit standing.