I don’t think we should default. But there’s going to have to be major cutbacks in Medicare and some reductions in social security benefits for affluent retirees. That will eventually have to happen along with higher inflation, but incredibly (and appallingly!), Obama apparently has decided not to do anything serious about the federal deficit until after the 2012 election. He’s truly Zero as a national leader. Four more years of partying at the White House is more important to him than America’s economic future.
One thing to keep in mind is that income tax rates escalate with higher income, and therefore very strong economic growth drives tax revenues way up because the federal government takes a large percentage of that last 25% of the income of business owners and professional people. So I think what we’re likely to see, once the economy finally gets rolling in a year or two, is more of an inflationary boom to drive up tax revenues and shrink the budget deficit. But I’m sure there will also be tax increases, especially sales tax increases at the state and local level.