Austin Bay

What can be done? If Vallejo doesn't seek legal relief from pension debt, other debt-ridden towns will.

In January the Congressional Research Service (CRS) issued a paper entitled "Sovereign Debt in Advanced Economies." The study notes that the debt of sovereign countries that can issue currency differs from private debt or Vallejo's municipal debt. There are no international bankruptcy courts "to provide creditors recourse against governments that refuse to pay their debts." The ability to issue currency means a sovereign government can print more money. This risk is inflation, which reduces the "real" value of the debt but also devalues everything else.

The CRS paper outlined five policy options for addressing debt. (1) Fiscal Consolidation: raise taxes, cut spending. (2) Debt Restructuring: lower and extended payments (Greece). (3) Inflation. (4) Growth: economic policies to spur growth. (5) Financial Repression: force citizens to buy government bonds.

The most interesting discussion addressed Growth. The CRS agreed that growth can be "stimulated" by "expansionary" spending, but that adds more debt. Another option offered debt reduction, albeit long-term: "pursuing structural reforms at the microeconomic level." These include spurring competition in industries and liberalizing trade. It should have added reducing tax complexity and regulatory burdens on small businesses. Growth at the grass roots by encouraging entrepreneurs -- that is the way to attack national debt.

Ah yes -- the debt clock. $16,959, 523,401,634. I think. The last four digits flashed by as I blinked.

Austin Bay

Austin Bay is the author of three novels. His third novel, The Wrong Side of Brightness, was published by Putnam/Jove in June 2003. He has also co-authored four non-fiction books, to include A Quick and Dirty Guide to War: Third Edition (with James Dunnigan, Morrow, 1996).
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