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Nobody expects a debt crisis until they do

As official Washington deepens its commitment to deficits and debt regardless of potential inflation or other repercussions, I recently came across an International Monetary Fund working paper by Paulo Mauro and Jing Zhou who found, “Government borrowing costs [on new debt] often rise abruptly and sharply, but just prior to default.” As a result, contrary to the voguish old ideas of Modern Monetary Theory, we cannot rest easy with today’s record-high federal debt even if interest rates are lower than the rate of economic growth. This finding also points against new state debt, which would suffer the same challenges that beset federal borrowing.

Joseph Coletti / Senior Fellow, Fiscal Studies

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...