I'd rather stiff the Chinese than sell the National Parks

According to Barron's, the price of CDSes on T-Bills has doubled -- though T-Bills remain AAA. At first glance, it seems ontologically impossible for our government to default on its debt, since the federal reserve can participate in treasury auctions and create the money that could be used to repay the debt. However, if we must choose between hyper-inflation and stagnation -- and if interest payments consume a greater portion of federal revenue than the rest of the budget, if the presence of the United States Government in credit markets is squeezing out business-building competitors, and if we reach the point where the rest of the budget is less than the tax revenue, it might make economic, logical and political sense for the Federal Government to start fresh.

The idea behind "trickle down" economics is that the very wealthy will be delighted to spend perhaps one or two percent of their net worth on labor intensive luxuries that create comfortable middle class lives for echelons of service workers, however, in a year where the very wealthy have lost twenty to forty percent of their net worth, it is hard for them to cultivate the celebratory mood required for free spending, and we watch the entire economy slide into the abyss.

Deflation leads to a cycle of economic stagnation -- people hoard cash because simply sitting on money is the equivalent to investing it. By the same logic, if the Fed wants to revive consumption, inflation creates a giddy incentive to keep money circulating, as a "use it or lose it" philosophy prevails.

Things will get worse if they get better

Right now, the Fed is furiously pouring money in the economy to counteract the deflationary pressure of the collapsed stock and housing prices. Fighting deflation hurts people with savings, but it removes the incentive to invest or lend money inside the system, so it makes sense to have an anti-deflationary social policy. But if share prices recover, that extra money in the economy will create inflationary pressures, and the federal reserve policy that counteracts those inflationary pressures will reduce the speed of the recovery.