Saturday, October 26, 2013

Tea Party Debt Reduction Tactics And Unintended Consequences

Conservative Republicans, led by those affiliated with the Tea Party, claim that their goal is to reduce the long term debt obligations of the federal government.  Simon Johnson argues that the tactics that they are using to achieve that goal are counterproductive.  They are increasing the risk to investors in US treasuries.  That may cause central banks and other large purchasers of US debt to look for an alternative to the dollar as the global reserve currency.  That will raise the interest rate that the government pays to service its debt.  Along with the rising cost of healthcare, the cost of future debt service is one of the leading expenditures of the federal government.  The tactics used by conservative Republicans may backfire.  Government spending in the long term will greater than it is projected when we assume that the  dollar will continue to be the global reserve currency.  They are playing a dangerous game that they do not fully understand.

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