Is the United States Bankrupt?
Laurence J. Kotlikoff
".. Many would scoff at this notion. They’d point
out that the country has never defaulted on its
debt; that its debt-to-GDP (gross domestic product)
ratio is substantially lower than that of Japan and
other developed countries; that its long-term
nominal interest rates are historically low; that
the dollar is the world’s reserve currency; and
that China, Japan, and other countries have an
insatiable demand for U.S. Treasuries.
Others would argue that the official debt
reflects nomenclature, not fiscal fundamentals;
that the sum total of official and unofficial liabilities
is massive; that federal discretionary spending
and medical expenditures are exploding; that the
United States has a history of defaulting on its
official debt via inflation; that the government has
cut taxes well below the bone; that countries holding
U.S. bonds can sell them in a nanosecond; that
Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial
implosion is just around the corner. This paper explores these views from both partial and general
equilibrium perspectives. It concludes that countries can go broke, that the United States is going
broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical
reform of U.S. fiscal institutions is essential to secure the nation’s economic future...."
Federal Reserve Bank of St. Louis Review, July/August 2006, 88(4), pp. 235-49.
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