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"The energy system in the U.S. is undergoing its most profound transformation in decades..."

Posted 5/13/2013 by Michael Gerrard

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Alumni Spotlight

Novelist and memoirist Da Chen ’90 left China for America in 1985 at the age of 23. Now the author of seven best-selling books, he reflects on his greatest inspiration and why he choose to attend law school.

In Session

Merim Razbaeva

Global Impact

Adam Brunk

Teaching Success

Double Play

Curtis J. Milhaupt

On Guard

C. Scott Hemphill

In Profile

Joel Mallin '60

On Display

Catherine R. McCabe '77

Keeping Watch

Bruce L. Davis '79

Tech Savvy

Victoria Bjorklund '83

Nonprofit Rockstar

Nancy Northup '88

Into the Fray

Happenings

Madison and Shea Receive Wien Prize

The awards ceremony highlighted the need for public service in law, with a special focus on the plight of those suffering post–Hurricane Sandy.

Class of 2012 Urged to Engage in Public Service

U.S. Solicitor General Donald B. Verrilli, Jr. ’83 delivered the keynote address at graduation celebrations.

Four Professors Join the Law School Faculty

Dean David M. Schizer has now added a total of 32 faculty members to the Law School in his more than eight years as dean.

Dean Schizer Leads Panel on State of the Economy

While Reunion 2012 panelists agreed that the economy is hurting, each had their own preferred strategy for spurring growth.

Law School Launches Center for International Arbitration

The new center further enhances the Law School’s long-standing position at the forefront of international arbitration teaching and scholarship.

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He's 90! Wow! I was an observer at the ALPA trial and sat in on one of his... More

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Legal Luminaries Honor Judge Jack B. Weinstein

Helpful to read an article that explains this challenging situation well.

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The Big Drop

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Andrew D. Ellis, JD '78 on
The Leading Edge

“The US, unlike Greece, has a sovereign currency. A nation with a... More“The US, unlike Greece, has a sovereign currency. A nation with a sovereign currency, virtually no foreign denominated debt, and a floating exchange rate does not face the same bond-vigilante concerns as a nation like Greece.” The notion that a country can run unlimited deficits in perpetuo verges on the silly. Even before the advent of globalization you have had numerous examples of countries who have tried this, either knowingly or involuntarily, while hoping to avoid disastrous economic consequences. For example, you had the WWI reparation payments triggering Weimar Germany’s hyper-inflation and in more recent memory you had the example of Argentina. In both cases they faced “bond-vigilante concerns” (Argentina now for the second time, cf. NML Capital Ltd., et. al. vs. The Republic of Argentina currently in the Second Cir. Ct. of Appeals). Were we completely self-sufficient and not running a consistent trade deficit there might be some merit to the thought although there are other potential consequences such as misallocation of resources and black markets and you have the Soviet Union as an example of the down side to trying to run a totally closed economy. The first thing that happens is that the currency depreciates which prompts capital flight which typically results in exchange controls (i. e., there goes the floating exchange rate out the window). The fact is that if we want to continue to buy tomatoes from Mexico, cars from Japan, jeans from China and basket ball shoes from Viet Nam and we have to borrow money to pay for them in increasingly worthless currency our creditors will simply refuse to continue lending or, alternatively and more likely, charge much more for our privilege of borrowing from them. Erskine Bowles has recently pointed out that we currently are paying about $250 to $300 billion in interest on our government debt at a time when interest on 10 year notes is hovering around 1.8%, the lowest ever based on the Fed’s efforts to artificially depress rates. Were interest rates simply to revert to their normal historical rates of 4-5% we will be paying $650-$700 billion annually (at current debt levels). One doesn’t need to be a mathematician to see what effect that would have on the disposable federal budget (not counting ripple effects throughout the economy). By the way, with $4 trillion on its balance sheet (and growing) the Fed isn’t necessarily in a position to continue to fund government debt unless you contemplate an inter-governmental Dawes Plan, e.g., simply reneging (“cancelling”) on the debt, in which case, if I was a Mexican tomato farmer I would ask to be paid in gold. As the old Asian proverb goes, there is no such thing as an iron rice bowl or in terms that may be more familiar, a “free lunch”.

Peter Basilevsky on
"We may avoid the fiscal cliff, but the fiscal pain is unavoidable..."

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"The energy system in the U.S. is undergoing its most profound transformation in decades..."

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