How to solve foreign debt? Go big
The developed world is awash in sovereign debt. Greece stands on the precipice of painful (and inevitable) default. Italy and Spain struggle to convince markets that their debts are good. Portugal and Ireland hope to get in the lifeboat with Italy and Spain, rather than drown with Greece. And then there鈥檚 the United States. Much further from a sovereign crisis than many Euro nations, but still on a worrisome long-term path of spiraling debt.
So what should policymakers do? Well, the dominate meme this week was clear. If you are faced with sovereign debt worries, you should go big:
- On Tuesday, the Committee for a Responsible Federal Budget released signed by a group of former government officials, budget experts, and business leaders (including me) urging the Joint Select Committee, aka the super committee, 鈥渢o 鈥榞o big鈥� and develop a large-scale debt reduction package sufficient to stabilize the debt as a share of the economy.鈥� A group of 38 senators followed with a similar letter, and a host of people made this argument at the super committee鈥檚 first hearing.
- The same day, Mario Blejer鈥搘ho led Argentina鈥檚 central bank after its default鈥搖rged Greece to go big: 鈥淕reece should default, and default big. A small default is worse than a big default and also worse than no default,鈥� he said in reported by Reuters Eliana Raszewski and Camila Russo.
- And then there was Benjamin Reitzes of BMO Nesbitt who was quoted by offering similar advice to the BRICS. Not, of course, to deal with their own debt, but with Europe鈥檚: 鈥淐onsidering Chinese purchases of European peripheral debt over the past year have provided only temporary relief, a small purchase won鈥檛 likely have much impact 鈥� go big or go home.鈥�
So there you have it. If you find yourself at a loss for words in a weekend discussion about sovereign debt, you know what to say: Go big. Or, if you are contrary sort, go small. Either way, you can keep the conversation going.
