Exploring Repudiation of Government Debt and the Possibility of a US Government Default

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This chapter explores the nature of sovereign defaults and the likelihood of the US government defaulting on its obligations. It discusses how defaults are more common in emerging markets, the challenge of servicing foreign currency debt, and the potential use of inflation to inflate away US debts.

Carmen Reinhart of the University of Maryland talks with EconTalk host Russ Roberts about the ideas in her book This Time is Different: Eight Centuries of Financial Folly (co-authored with Kenneth Rogoff). They discuss the role of capital inflows in financial crises, the challenges of learning the right lessons, and what is generally true about financial crises over time and place. Reinhart applies these observations to the current crisis, discusses the possibility of the U.S. defaulting on its sovereign debt, and discusses the possibility of financial reforms that might make a difference.