24 February 2011

Does The U.S. Really Have A Fiscal Crisis?

By Simon Johnson

The United States faces some serious medium-term fiscal issues, but by any standard measure it does not face an immediate fiscal crisis. Overindebted countries typically have a hard time financing themselves when the world becomes riskier – yet turmoil in the Middle East is pushing down the interest rates on US government debt. We are still seen as a safe haven.

Yet leading commentators and politicians today repeat the line “we’re broke” and argue there is no alternative other than immediate spending cuts at the national and state level.

Which view is correct? And what does this tell us about where our political system is heading?

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