How to solve foreign debt? Go big
Large scale measures are the only way to solve a nation's debt problem. That goes for the United States, too.
The developed world is awash in sovereign debt. Greece stands on the precipice of painful (and inevitable) default. Italy and Spain struggle to convince markets that their debts are good. Portugal and Ireland hope to get in the lifeboat with Italy and Spain, rather than drown with Greece. And then there’s the United States. Much further from a sovereign crisis than many Euro nations, but still on a worrisome long-term path of spiraling debt.Skip to next paragraph
Donald B. Marron is director of the Urban-Brookings Tax Policy Center. He previously served as a member of the President's Council of Economic Advisers and as acting director of the Congressional Budget Office.
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So what should policymakers do? Well, the dominate meme this week was clear. If you are faced with sovereign debt worries, you should go big:
- On Tuesday, the Committee for a Responsible Federal Budget released a letter signed by a group of former government officials, budget experts, and business leaders (including me) urging the Joint Select Committee, aka the super committee, “to ‘go big’ and develop a large-scale debt reduction package sufficient to stabilize the debt as a share of the economy.” A group of 38 senators followed with a similar letter, and a host of people made this argument at the super committee’s first hearing.
- The same day, Mario Blejer–who led Argentina’s central bank after its default–urged Greece to go big: “Greece should default, and default big. A small default is worse than a big default and also worse than no default,” he said in an interview reported by Reuters Eliana Raszewski and Camila Russo.
- And then there was Benjamin Reitzes of BMO Nesbitt who was quoted by The Globe and Mail’s Michael Babad offering similar advice to the BRICS. Not, of course, to deal with their own debt, but with Europe’s: “Considering Chinese purchases of European peripheral debt over the past year have provided only temporary relief, a small purchase won’t likely have much impact … go big or go home.”
So there you have it. If you find yourself at a loss for words in a weekend discussion about sovereign debt, you know what to say: Go big. Or, if you are contrary sort, go small. Either way, you can keep the conversation going.
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