How to Induce Explosive Debt Dynamics
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January 27, 2013 - 3:36am
by Menzie Chinn, Econbrowser.com
The debt ceiling and implications of:
"We Republicans need to be willing to tolerate a temporary, partial government shutdown.”
and more recently
"I think it is possible that we would shut down the government to make sure President Obama understands that we’re serious."
It is one of the oddities of current discourse in macroeconomic policy that there are concerns about the short term sustainability of the Federal government’s abilities to finance debt, despite the fact that the on the run ten year TIPS (maturing 1/15/2022) is -0.760% (1/11/13). I do believe there is reason for concern in the long term. However, should we encounter difficulties in raising the debt ceiling, the timetable could be greatly accelerated. To see this, consider the following expression:
(1) it10y = (it + Etit+1 + ... + Etit+9)/10 + lpt10y + rpt10y Read ...
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