Your “Debt and Growth” editorial (April 30) defending the Ken Rogoff-Carmen Reinhart thesis that the growth trajectory of U.S. debt comes with significant risk and curtailed economic growth is well-reasoned in the midst of contrary assertions by Paul Krugman and a myriad of Keynesians that an error in a Rogoff-Reinhart spreadsheet discredits their monumental book “This Time is Different.” That work, covering 66 countries over several hundred years, proves overwhelmingly that highly leveraged economies all suffer the same fate of financial collapse when loss of confidence reaches critical mass.
Total U.S. government debt in the form of IOUs to the Social Security and Medicare trust funds and interest-bearing bonds grew 53% from $10.7 trillion to $16.4 trillion during President Obama’s first term. Total debt is now about 105% of U.S. GDP, a ratio Greece hit in 2007 only a few years before its economy began unraveling.
Many claim the reserve status of the U.S. dollar makes us unique among nations in the amount of money we can print and debt that we can issue, and that “this time is different.” Not so. The dollar’s reserve-currency status is also a trigger that alone could precipitate a loss of confidence leading to a global financial collapse that would make the 2008 crisis look like a summer storm. The Federal Reserve has recently been purchasing as much as 60% of net U.S. Treasury issuance. That suggests the erosion of confidence in the dollar is underway and a change of course overdue.