Government Debt Bubble

Not often do I agree with the New York Times:

This time is different.
That’s what people argue every time a bubble inflates, and what they think every time they are chastened by its popping. But century after century, decade after decade and year after year, human beings irrationally exuberate all over again...
But a sovereign debt bubble — which many argue is driving the acceleration in gold prices — could prove far more dangerous.
So many countries, like the United States, are running up such large national debts as a percentage of their overall economies that they could risk eventual default. Even without outright default on their obligations, the value of government bonds sold to finance these deficits could plunge, costing investors a lot.
“Talk about a big bubble that really affects the global economy,” said Kenneth Rogoff, an economics professor at Harvard whose new book, “This Time Is Different,” chronicles 800 years of debt-driven financial crises.
“The huge run-up in government debt has led to patently unsustainable fiscal policies across a number of major countries,” he said. “So far, the rest of the world’s been willing to finance it, primarily with savings from China and elsewhere, but if investors’ confidence is shaken, we might see the interest rates on long-term debt rising, and rising very sharply.”
Debt crises are usually associated with developing countries, like Brazil, Argentina or Zimbabwe. But they can affect big, rich economies too, where the scale of global damage can be much greater.
“Look at California,” Mr. Rogoff said. “It’s incredibly rich, but Californians want a lot of services but don’t feel like taxing themselves to pay for them. You can be incredibly rich and still go bankrupt.”
The depth and breadth of the pain unleashed by the recent housing bust have led political leaders and central bankers to reconsider their duties to pre-empt, rather than just respond to, potential bubbles, and the same is true with the potential bubbles that economists foresee today.
China has started to tighten monetary policy to rein in the hype surrounding its equities. Politicians in the United States, while torn over the means, are discussing ways to bring the deficit until control.
The Group of 20, at its coming meeting in Pittsburgh, is expected to address ways to calm financial frenzies. The solution may involve additional regulation, guidelines for financial compensation and possibly requirements for more market transparency so that, at least in theory, investors can better judge what they are taking on.
But however stringent such new regulations may be, economists say, they cannot completely defeat human nature. Investors will continue to be hypnotized by get-rich-quick deals, seeking investments that magically double, double without toil or trouble.
“Ultimately, bubbles are a human phenomenon,” said Robert Shiller, a Yale economics professor and Cassandra of the current crisis. “People just get a little crazy.”