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.

The Blacksmith: A Short Film About Art Forged From Metal

"I'm exploiting the maximum of what you can ask a piece of metal to do."

Join the Discussion

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

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In