About a month ago, the United States experienced the “Shutdown” for 15 days. Several jurisdictions were closed and about 800,000 employees have been laid off because no agreement was reached on the budget. The Democrats and President Obama cried about the paralysis of the economy in order to end the “shutdown”. In fact, the US economy has not been affected by the shutdown. More: the US economy even experienced an upturn. According to the data on the third quarter, U.S. GDP grew by 2.8% and more than 212,000 net jobs were created in the private sector! Long live the “shutdown”!
If governments continue to pile on more and more debt, when will they reach the tipping point? The Greeks appear to be close to the tipping point, and it is only a matter of time before other European countries, and eventually even the United States, begin their fiscal death spiral. The Greek government’s unwillingness to make the hard choices necessary to put its fiscal house in order in the past few weeks has caused investors to demand a 2.5 percent premium on its government-issued Eurobonds over those issued by the German government.
A new historical database on debt and banking crisis is showing that we might be in a trivial, rather than exceptional economic situation regarding government debt. Kenneth Rogoff and Carmen Reinhart, the authors of the database and the connected study are showing that over the longer sweep of history governments regularly resorted to defaulting or at least restructuring their “uncomfortable” government debt. After the Great Depression, over 40% of the countries did so, and after the 1980-82 recession, 30% of the countries did it.