[The third and] what I want to talk about instead is a question that some of us have been asking with growing frequency over the last couple of years: Are Greek-type crises likely or even possible for countries that, unlike Greece and other European debtors, retain their own currencies, borrow in those currencies, and let their exchange rates float? What I will argue is that the answer is "no".... First, countries that retain their own currencies are less vulnerable to sudden losses of confidence than members of a monetary union--a point effectively made by Paul De Grauwe (2011). Beyond that... even if a sudden loss of confidence does take place, countries that have their own currencies and borrow in those currencies are simply not vulnerable to the kind of crisis so widely envisaged.... Mobody seems to have laid out exactly how a Greek-style crisis is supposed to happen in a country like Britain, the United States, or Japan--and I don't believe that there is any plausible mechanism for such a crisis.
Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity: An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading. Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.... Fortunately, the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.
[T]his is a problem we're going to have to face up to. It may be two years, you know, maybe a little less, maybe a little more. But if our bankers over there in Asia begin to believe that we're not going to be solid on our debt, that we're not going to be able to meet our obligations, just stop and think for a minute what happens if they just stop buying our debt.