Some Possible Consequences of a U.S. Government Default

Jeffrey Rogers Hummel

Econ Journal Watch, 2012, vol. 9, issue 1, 24-40

Abstract: The U.S. government faces a looming fiscal crisis. A default on Treasury securities appears inevitable. The short-run consequences for the economy will be painful. But the long-run consequences, both economic and political, could be beneficial. The most important long-run political benefit would be the imposition of fiscal discipline. The long-run economic benefit would be the alleviation of the future tax liabilities required to service the national debt, irrespective of whether those liabilities are correctly anticipated or not. A historical examination of the state government defaults of the 1840s provides one case study where the long-run consequences were indeed salutary.

Keywords: sovereign debt crisis; default; financial crisis; repudiation; U.S. deflation of 1839-1843 (search for similar items in EconPapers)
JEL-codes: G01 H63 (search for similar items in EconPapers)
Date: 2012
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