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I recall from Keynes's Economic Consequences of the Peace that he had some spectacularly counter-intuitive observations about the macroeconomic effects of reparations on the recipient, whom they tend to impoverish, and that they turned out to be spectacularly true.  

I also recall discussions I had with economics masters candidates about balance of payments issues where they pointed out that when you run a balance of accounts deficit it is kind of like your trading partner, e.g. China, is giving you stuff for free.  I was never completely convinced.

I certainly hope that some of the heavyweight economists on ET can clarify.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 31st, 2008 at 05:43:31 PM EST
when you run a balance of accounts deficit it is kind of like your trading partner, e.g. China, is giving you stuff for free.

It is for free, if you finance your consumption by issuing debt, and then defaults on the debt.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat May 31st, 2008 at 07:18:36 PM EST
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And the way things are going we may have to.  However, I have this disquieting feeling that this would not make all of the goods free and/or that it would not be without consequences.  But what are they?  

Is the World Bank going to impose sanctions?  Why should we care?  

Will the US remain the world's largest consumer economy? Well, we might have some difficulty getting our beloved Mid East Oil.  The Kingdom and the Emirates might take default personally.

With other trading partners can we take the position: We are your largest market. Consider the hit as a cost of doing business and the market is open.  Promise not to do it again. If so, then I would truly know WHY I AM PROUD TO BE AN AMERICAN!

If the US defaulted how much of a world economy would remain?

I can see that it would stop the accumulation of wealth by the top 1% in its tracks.  DEFAULTS FOR ECONOMIC JUSTICE!  

As a practical matter we may have to forgive our debtors.  The Lord's Prayer as Economic Policy! This is getting good.

But I still would like to know what Keynes would say.  Can anyone channel JMK?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 31st, 2008 at 10:08:53 PM EST
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