Is the American Political System the latest Bubble?

The best way to look at this, I think, is that there’s a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number of government employees that the resources which were promised them will not, in fact, arrive.

Both of them involve the government going back on its promises, but some promises are far more binding, and far more important, than others.

Right now, we’ve already reached the point at which the government has broken very important promises indeed: We promised to pay hundreds of thousands of government employees a certain amount on certain dates, in return for their honest work. 

We have broken that promise. By Treasury’s own definition, it’s reasonable to say that we have already defaulted: surely, by any sensible conception, the salaries of government employees constitute “legal obligations of the US”

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