Thursday, July 28, 2011

TINA to US debt?

I picked up the term TINA while living in Anand from friends who were graduates of the Indian Institute of Rural Management where, apparently, its usage was rampant. TINA stands for There Is No Alternative. A typical instance usage would go thus:
Question: Why are we eating at this crappy restaurant again??
Answer: It is 2 AM. TINA.
The ongoing knicker-bunching about the lack of a debt/budget deal between the US Congress and its executive oft brings up the notion of TINA to mind. One asks oneself, so what will the sovereign bond-buyers buy if they balk from buying US bonds (remember, selling bonds is how nations borrow money)?

Those who raise the specter of horrible consequences of a US default choose to ignore the fact that the transaction of a loan is a win-win situation, in most situations. The creditor finds a place to gainfully park his wealth, and that parked wealth floats the debtor's boat. If you were a sovereign bond buyer, what other bond-issuer would you go to, who has the ability to issue you such dependable paper, and in such volume?

As a matter of fact, the long painful discussions within the American leadership only reinforce the fact that the nation is serious about fulfilling its obligations. They are not fighting about whether, they are fighting about how (to pay off the debts). Contrast this with Greece, where thousands descended on the streets and rioted because they didn't want their country to make peace with its creditors. Remember, nobody in America - not the politicians, not the people - is talking about stiffing the country's investors.

This is not to say that a default would not raise interest rates on US bonds. However, that would be a long-overdue manifestation of America's suffering economic strength and its profligacy, not its inability to reach a political consensus. Indeed, if there was an example of good democracy, the current debt fight is it - two groups strongly entrenched in their principles fighting each other in a perfectly civil way. While most in the country may wish for a quick resolution, they will as quickly also add that "their" side's plan is better than the other.  Long live democracy, long live the debt talks.

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