2012: Econopocalyse

Where will the next crisis come from? Economist Greg Ip does not know. But he does know when it will come: 2012.

For now, there's enough risk of Japanese-style stagnation and deflation that U.S. interest rates could remain very low for a while yet. But if that risk fades, investors in U.S. Treasury bonds will want to know how we'll get our deficits and debt under control -- and could demand higher interest rates to compensate for the uncertainty. By then, though, the 2012 campaign may be upon us. The Republican nominee will assail Obama's fiscal record and promise a determined assault on the debt. Obama will respond by blaming George W. Bush and promising to unveil his own plan once he's reelected. Neither will commit political suicide by specifying which taxes they'll raise or which entitlements they'll cut.

Will investors trust them, or will they start to worry that the endgame is either inflation or default, two tried-and-true ways other countries have escaped their debts? If it's the latter, we'll face a vicious circle of rising interest rates and budget deficits, squeezing the economy and potentially forcing abrupt and painful austerity measures

Read the full story at Washington Post.

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Does This Child Need Marijuana?

Dravet Syndrome is a severe form of epilepsy that affects children. Could marijuana oils alleviate their seizures?

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

Does This Child Need Marijuana?

Inside a family's fight to use marijuana oils to treat epilepsy

Video

A Miniature 1950s Utopia

A reclusive artist built this idealized suburb to grapple with his painful childhood memories.

Video

Why Principals Matter

Nadia Lopez didn't think anybody cared about her school. Then the Internet heard her story.

Video

A History of Contraception

In the 16th century, men used linen condoms laced shut with ribbons.

Video

'A Music That Has No End'

In Spain, a flamenco guitarist hustles to make a modest living.

More in Business

Just In