Who're You Callin' Insolvent?

Dani Rodrik didn’t write this about the United States, and he didn’t write it last week, but read this catalog of how an economy might go bollywackers:

When the economy is on an unsustainable path—for example, when the country as a whole or the government is accumulating obligations at a rate that will compromise its ability to abide by them—participants in the economy know that the current rules of the game will need to be abandoned and act to protect themselves from the expected changes rather than engage in productive investments. Problems of macro stability can be generated by imbalances arising from different areas. The fiscal accounts may be in deficit, and public debt may be increasing faster than the capacity to service it. Longer-term fiscal commitments, in particular the actuarial liabilities of the government vis-à-vis the pension system, may bankrupt an otherwise solvent government. A monetary policy may be too looses, causing a loss of international reserves and an eventual large depreciation. Banks may be taking excessive risk, which can result in a disruptive crisis that often weakens both fiscal and monetary stability. The country may be running large external imbalances that translate into reserve loss or a rapidly rising external debt and signal the need for eventual currency depreciation. The real exchange rate may be misaligned, limiting the profitability and growth of export- and import-competing sectors.

—Dani Rodrik, One Economics, Many Recipes 74 (2007)

Remind you of anyone you know?