America is not broke

at 02:09 PM ET, 03/14/2011

Is America — as many politicians and pundits like to say — “broke”? Bloomberg’s David Lynch says no. “A person, company or nation would be defined as ‘broke’ if it couldn’t pay its bills,” he writes , “and that is not the case with the U.S. Despite an annual budget deficit expected to reach $1.6 trillion this year, the government continues to meet its financial obligations, and investors say there is little concern that will change.”

And — if you’ll excuse the double negative — it’s not just that we’re not broke now. The market doesn’t expect us to become broke later, either. Interest rates on government debt are essentially the market’s aggregate judgment on how likely a government is to lose the capacity to pay its bills. In our case, the market says it’s not likely. At all. “The cost of insuring for five years a notional $10 million in U.S. government debt is $45,830. ... That makes U.S. government debt the fifth safest of 156 countries rated and less likely to suffer default than any major economy, including every member of the G20.”

In his column today, E.J. Dionne does a nice job picking up on the political implications of this. “We have an 8.9 percent unemployment rate, yet further measures to spur job creation are off the table. We’re broke, you see. We have a $15 trillion economy, yet we pretend to be an impoverished nation with no room for public investments in our future or efforts to ease the pain of a deep recession on those Americans who didn’t profit from it or cause it in the first place. ... Many of those folks are going broke, yet because ‘we’re broke,’ we’re told we can’t possibly help them.”

 
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