I think Dean Baker and I are converging on deficits and independent currencies. He asserts that having your own currency makes a big difference — you can still end up like Zimbabwe, but not like Greece right now. I’m fine with that.
Specifically, the reason Greece (and Ireland, and Portugal, and to some extent Spain) are in so much trouble is that by adopting the euro they’ve left themselves with no good way out of the aftereffects of the pre-2008 bubble. To regain competitiveness, they need massive deflation; but that deflation, in addition to involving an extended period of very high unemployment, worsens the real burden of their outstanding debt. Countries that still have their own currencies don’t face the same problems.
I like to use this picture, showing deficits and debt as of the end of 2010:
Source. I’ve used the 2009 deficit for Ireland, so as not to include the one-time costs of the bank bailout.
What you can see here is that the US and the UK look as if they should be in a similar category with the troubled European peripherals; and Japan is literally off the chart. But having our own currencies makes a big difference.
All I’m saying is that dollar or no dollar, fiscal solvency is still an issue — not now, not for some time to come, but not something we can always ignore.