Here's what my Financial Advisor, Davis Waldo, had to say:
One has to draw a distinction between contracts between private parties, where the debt must be liquidated via payback or default, and debt where a government obligates itself to pay back in a fiat currency that they can produce at will. These rarely are liquidated or completely defaulted on, but the purchasing power of the fiat currency in which it is paid off is not specified in the bargain, unless you're dealing with some kind of inflation indexed security. There are some exceptions, like when the government changes so radically that they repudiate all obligations made by the former government, i.e. Russian revolution. I have one of these bonds issued by the Imperial Government of Russia in 1909. Its beautiful and worthless, except for collecting. Thanks Robert C On 9/10/10 10:42 AM, glen e. p. ropella wrote:
I keep hearing people claim that any debt the US builds/acquires will have to be paid (or defaulted on) by "our children and their children". This oversimplification has always _seemed_ fundamentally wrong to me ... more wrong than just being an oversimplification. It doesn't seem to me like the economy is a zero-sum game. Money isn't subject to any conservation laws that I"m aware of. Granted, there are economic drivers that are conserved; but money isn't one of them. So, what literature do I need to start reading that will help me a) understand what is and isn't conserved about debt and b) clarify this point to those who insist on making the oversimplified argument? I'm not convinced one way or the other; I just want to find a bit of clarity around this soundbite. In particular, it strikes me that on a personal scale (time and distance), money is mostly conserved. E.g. I pile up credit card debt or buy a house and that debt sticks with me. I either have to pay it off or default (or die). But is that true at all scales? I've spent some time looking at generic books and popular magazine articles on economics. But they lack the clarity I need (or perhaps I'm too thick to understand them). And the sources for Game Theory I've seen are too idealistic to get any real traction for an argument. Thanks.
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