Drowning in debt

The Washington Post editorializes what it calls “the coming debt panic,” generated by a realization that

Getting the debt back down to a reasonable level will require extraordinary, almost unimaginable, fiscal discipline and political cooperation. Failing to do so will lower the national standard of living and ultimately threaten America’s economic stability.

The Post cites the Peterson-Pew Commission on Budget Reform recommendation that Congress move to stabilize the debt-to-GDP ratio at 60 percent over the next decade, as opposed to the 85 percent projected by the Congressional Budget Office, then reduce debt to 40 percent over the longer term. But what would this require?

The deficit level leading to a sustainable ratio of debt to GDP equals the rate of economic growth multiplied by the target debt/GDP ratio. In this case, the target ratio of debt/GDP is 40 percent and the CBO projects an average nominal rate of GDP growth of around 4.6 percent. The result is a budget deficit of 1.8 percent of GDP.

Now consider the budget deficits we’re looking at: CBO projects an average annual deficit over the next 10 years of more than 5 percent of GDP under President Obama’s budget, implying significant tax increases or spending cuts would be needed now. In the following decade, when entitlement spending really kicks in, things will only get more difficult.

If you can’t believe this can be done—and I here expressed some skepticism that our elected officials are capable of doing it—then we have two choices. First, a commission approach to reforming entitlements and potentially the tax code, with representation from across the political spectrum and an expedited process for legislative consideration. Or second, ultimately a true panic situation when it becomes clear that the federal government is unable to get its borrowing under control and our lenders attempt to limit their losses. I sketched out what this might look like here.

Left-leaning groups protest that an entitlement commission bypasses the legislative process. But the alternatives may be even worse.

The above is from an article by Andrew Biggs at the American Enterprise Blog entitlted Our Coming Debt Panic.

Here’s my two cents worth.

The government, as Ronald Reagan told us, IS the problem.  We need to get them to stop trying to fix what’s wrong, stop tying our hands behind our backs, and let us get to work fixing things.

The US Debt is now over $12 trillion.  You probably knew that.  What you may not realize is that we have another cute little item called “unfunded liabilities” on our balance sheet, and that number absolutely dwarfs the debt!  It’s over $106 trillion.

If the government promises to pay you something later, rather than now, it’s not called a debt.  It works like a debt, but it’s not counted as one.  Still, it is money the government is going to have to pay out some day.  And if they can’t pay it, guess what they do?  There are only three things:  Raise taxes, borrow more money, or (gasp) default on the debt.  I do not believe we are anywhere close to that nightmare.  But it is not a pretty picture.

Check it out for yourself.  The US National Debt Clock is now online.  It’s too big to fit here, so you’ll have to leave this page.  But spend some time with it.  It’s fun watching the numbers roll by.

Wait, what?

You mean those are real numbers?


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