From New Deal 2.0 , Auerback writes of sovereign governments..
Sovereign debt is not a problem as long as the nation’s debt contracts is denominated in the nation’s currency — and the nation has control over its own currency (in contrast to the euro zone). The Greek problem is the equivalent of the California problem, where California does not print its own currency.
The US managed the transition from war-time policy to peace-time policy via an acceptance of the (by then) Keynesian consensus that growth was dependent on demand and that the public deficit could underpin spending.
Growth reduced the public deficit as taxation receipts rose and spending could be wound down in an orderly manner relative to the growing size of the economy. Growth also saw the public debt ratio drop significantly. It also reduced the public debt ratio significantly during the 1940s and into the 1950s. There were no oppressive intergenerational burdens to be paid. The early baby boomers in the US and elsewhere enjoyed the growing prosperity of the peacetime 1950s. It was a time of optimism, not austerity. (link to full article)
