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21. The Liquidation of Government Debt

Author:
Carmen M. Reinhart
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of "financial repression." Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks. In this paper, the authors describe some of the regulatory measures and policy actions that characterized the heyday of the financial repression era. In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historical standards). For the advanced economies in Reinhart and Sbrancia's sample, real interest rates were negative roughly half of the time during 1945–80. For the United States and the United Kingdom, their estimates of the annual liquidation of debt via negative real interest rates amounted on average to 3 to 4 percent of GDP a year. For Australia and Italy, which recorded higher inflation rates, the liquidation effect was larger (around 5 percent per annum).
Topic:
Debt, Economics, International Trade and Finance, and Markets
Political Geography:
United States and United Kingdom

22. Warning: Hollow Force Ahead! The Effect of Ever More Defense Budget Cuts on US Armed Forces

Author:
Gary J. Schmitt and Thomas Donnelly
Publication Date:
07-2011
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
National security is neither a "sacred cow" nor just another federal budget line item. Providing for the common defense of the American people and our homeland is the primary responsibility of policymakers in Washington. However, in an effort to protect social entitlements like Medicare, Medicaid, Social Security and the health care reform law from serious deficit and debt reduction efforts, President Obama has proposed not only to raise taxes, but also to cut another $400 billion more from future national security spending. As Obama said on June 29, 2011, "[Outgoing Secretary of Defense] Bob Gates has already done a good job identifying $400 billion in cuts, but we're going to do more."
Topic:
Defense Policy, Arms Control and Proliferation, Debt, and War
Political Geography:
United States, America, and Washington

23. The Subprime Lending Debacle: Competitive Private Markets Are the Solution, Not the Problem

Author:
Patric H. Hendershott and Kevin Villani
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The United States' market-government hybrid mortgage system is unique in the world. No other nation has such heavy government intervention in housing finance. This hybrid system nurtured the excessively risky loans, financed with too much leverage, that fueled the U.S. housing bubble of the last decade and resulted in the systemic collapse of the global financial system.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
United States

24. Bankrupt: Entitlements and the Federal Budget

Author:
Michael Tanner
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The U.S. government is about to exceed its statutory debt limit of $14.3 trillion. But that actually underestimates the size of the fiscal time bomb that this country is facing. If one considers the unfunded liabilities of programs such as Medicare and Social Security, the true national debt could run as high as $119.5 trillion.
Topic:
Debt, Economics, Human Welfare, Financial Crisis, Governance, and Health Care Policy
Political Geography:
United States

25. Austerity ahead: How will a conservative victory change Spanish politics?

Author:
Teemu Sinkkonen
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The electoral defeat suffered by the ruling Socialist Party (Partido Socialista Obrero Español, PSOE) in the municipal elections and the prolonged financial crisis has forced Prime Minister Zapatero to call an early general election on 20 November. The Conservative People's Party (Partido Popular, PP) is ahead in the polls by a clear margin and is likely to gain an absolute majority in the parliament. The economic outlook for Spain looks bleak, which means that the new government will have to create new jobs quickly and push through harsh and unpopular reforms, particularly regarding the fiscal and administrative structures. The Indignados protest movement is gaining support, and looks set to challenge the legitimacy of the system and force the future government to produce speedy results. Spain is expected to enhance its role in international politics through pragmatic bilateral relations. In particular, relations with the US seem to be warming up, while Spain can turn to the UK and Poland in the EU for companionship
Topic:
Debt, Democratization, Economics, and Financial Crisis
Political Geography:
United States, United Kingdom, Europe, and Spain

26. The Future of Convergence

Author:
Dani Rodrik
Publication Date:
10-2011
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
Novelists have a better track record than economists at foretelling the future. Consider then Gary Shteyngart's timely comic novel “Super Sad True Love Story” (Random House, 2010), which provides a rather graphic vision of what lies in store for the world economy. The novel takes place in the near future and is set against the backdrop of a United States that lies in economic and political ruin. The country's bankrupt economy is ruled with a firm hand by the IMF from its new Parthenon-shaped headquarters in Singapore. China and sovereign wealth funds have parceled America's most desirable real estate among themselves. Poor people are designated as LNWI (“low net worth individual s”) and are being pushed into ghettoes. Even skilled Americans are desperate to acquire residency status in foreign lands. (A degree in econometrics helps a lot, as it turns out). Ivy League colleges have adopted the names of their Asian partners and yuan-backed dollars are the only safe currency.
Topic:
Debt, Economics, Emerging Markets, Sovereign Wealth Funds, and Financial Crisis
Political Geography:
United States, China, America, and Singapore

27. Going for Broke: The Budgetary Consequences of Current US Defense Strategy.

Author:
Carl Conetta
Publication Date:
10-2011
Content Type:
Policy Brief
Institution:
Project on Defense Alternatives
Abstract:
The sharp rise in the Pentagon's base budget since 1998 (46% in real terms) is substantially due to strategic choice, not security requirements, per se. It reflects a refusal to set priorities as well as a move away from the traditional goals of military deterrence, containment, and defense to more ambitious ends: threat prevention, command of the commons, and the transformation of the global security environment. The geographic scope of routine US military activity also has expanded.
Topic:
Security, Foreign Policy, Defense Policy, and Debt
Political Geography:
United States

28. The Pentagon's New Mission Set: A Sustainable Choice?

Author:
Carl Conetta
Publication Date:
10-2011
Content Type:
Policy Brief
Institution:
Project on Defense Alternatives
Abstract:
Today, the United States enjoys an abundance of military power, but it is a uniquely expensive asset. During the past 20 years we have sought new ways to put this asset to work. Reviewing the change in the Pentagon's mission set, several broad trends are discernible: Mission objectives have grown much more ambitious, generally. The geographic scope for intensive US military efforts has widened significantly. Across the globe, the focus of US military action and investment has become less discriminate and more sweeping or comprehensive. Missions that put US “boots on the ground” in foreign nations in either a direct action, advisory, or capacity- building role have grown much more prominent. US policy continues to emphasize multinational approaches to addressing security issues, however the trend has been for the United States to play an ever more prominent role as the convener, governor, and quartermaster of joint action.
Topic:
Security, Defense Policy, and Debt
Political Geography:
United States

29. Strategic Adjustment to Sustain the Force: A survey of current proposals.

Author:
Charles Knight
Publication Date:
10-2011
Content Type:
Policy Brief
Institution:
Project on Defense Alternatives
Abstract:
The essential challenge in the art of strategy is how to achieve objectives within the demanding reality of resource constraints. Agile strategists must always be prepared for changing resource conditions and quickly adapt accordingly.
Topic:
Security, Defense Policy, and Debt
Political Geography:
United States

30. Pentagon cuts in context: No reason for "doomsday" hysteria

Author:
Carl Conetta
Publication Date:
10-2011
Content Type:
Policy Brief
Institution:
Project on Defense Alternatives
Abstract:
Recent Obama administration defense budget requests and proposals all fall within a narrow range of possible expenditures for the 2013-2023 period. All have kept the Pentagon's base budget above Cold War spending peaks. The President's 13 April proposal is no exception. It is a modest step that, at best, aims to retract future budget plans by 6.5 percent or $400 billion. The resulting average annual Pentagon base budget f or 2013-2023 would be close to today's level in real terms. The President's slice into non-security discretionary spending plans is audacious by comparison, reversing the proportionately suggested by his Fiscal Commission, and increasing the proportion of discretionary spending allocated to the Pentagon. The President's proposed new constraints on Pentagon budget growth hardly risk America's role in the world, as some contend, and by themselves do not necessitate a strategic review. Still, the President's launch of a such a review is a welcome development. It can help return America' s military posture to a reasonable and sustainable footing – provided that it elicits broad debate, solicits alternative viewpoints, and reaches beyond a $400 billion crease in the Pentagon's future budget plans.
Topic:
Defense Policy, Cold War, and Debt
Political Geography:
United States and America