In Which Greg Mankiw Annoys Karl Smith…

I see that Greg Mankiw annoys Karl Smith:

Greg Mankiw on Fiscal Policy: Greg’s analysis is a bit off in his recent NYT column but most notably here.

The more we rely on deficit spending to keep the economy afloat, the more we risk the kind of sovereign debt crisis we have witnessed in Greece over the past year…. To be sure, the bond market doesn’t seem particularly worried about the solvency of the federal government. It is still willing to lend to the United States at low rates of interest. But the same thing was true of Greece four years ago. Once the bond market starts changing its mind, the verdict can be swift, and can lead to a vicious circle of rising interest rates, increasing debt service and budget deficits, and falling confidence…

Karl writes:

[I]n none of these [possible] cases does the United States end up like Greece. In order for that to happen the United States would have to abandon its own currency and conduct monetary policy using something other T-Bills. Given our current set, however, ending up like Greece is essentially impossible.

Karl is, of course, correct. A "Greece" can only happen to a country that does not control its own currency.