US Government Debt Different - Finance Department - University of ...

Peter R. Fisher 878Thoughts on Debt Sustainability:Supply and DemandKeynote RemarksPeter R. FisherUnder what conditions do sovereign borrowers default? Under whatconditions do sovereigns with very high levels of indebtedness notdefault? Can we draw any useful insights from contrasting these twosets of conditions to address the question of whether U.S. governmentdebt is different or to illuminate the likelihood of a U.S. default?By phrasing the questions this way, I should confess that I am alreadyanticipating my conclusion: in the analysis of sovereign debt sustainabilitythere is too much attention given to measures of supply andtoo little attention to the sources of demand. That which is easy tomeasure distracts us from that which is important. Measures of thecurrent (and projected) level of U.S. government indebtedness (relativeto measures of the size of the economy) distracts us from themore difficult and important task of understanding the sources of,and behavior of, demand for federal debt.The sources and behavior of demand are to be found in the pool ofsavings that can be drawn upon to purchase the debt. In particular,