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September 17, 2012

To whom do we owe that?

Decades ago we were told that government debt was not a problem, because we owed it to ourselves. This point cannot be made today. We owe about 50% of the debt held by the public (that is, people) to foreigners. We owe over 30% of the total debt to foreigners. Owing it to others may constrain future decisions on what to do with the debt.  For example, some may argue that we should inflate in order to reduce the impact of the debt. Can you imagine the impact on the foreign central banks that hold much of this debt? Can you imagine how they will squeal? Of course, I would squeal too. Would you?

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