On the Fiscal Road to Serfdom

History is littered with examples of major economic and financial crises in countries that have engaged in public spending profligacy. That sad experience should be raising red flags in the United States, where the unsustainable longer-run trajectory of the U.S. public finances is now suggesting the real risk of either a destructive burst of inflation or an outright government debt default. This is particularly the case in today's U.S. context where an ever-increasing portion of the U.S. budget deficit is being financed by foreigners and where entitlement programs threaten over the longer haul to compound an already highly compromised public finance position.

These considerations would suggest that it bears reflecting on (a) what history might teach us about sovereign debt defaults; (b) what special features characterize the present U.S. public finance outlook; and (c) what the end-game might be for a country with unsustainable public finances.

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Desmond Lachman is a resident fellow at AEI.

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About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

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