3 Things You Need to Know on U.S. Long-Term Fiscal OutlookPosted by Randy | June 23, 2011
Economists Kenneth Rogoff and Carmen Reinhart have noted that debt-to-GDP ratios of over 90 percent are associated with lower economic growth and increased risk of a severe debt crisis. In its latest report on our nation’s Long-Term Fiscal Outlook, the nonpartisan Congressional Budget Office says that total U.S. debt will cross that tipping point and surpass 100 percent of the economy by the end of this year. Debt held by the public (overall national debt includes inter-government holdings) will overtake the economy in ten years.
Here are three things you need to know from the latest CBO report:
Our debt will prevent the creation of jobs.
According to CBO, “Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would confront policymakers with extremely difficult choices.” Read more.
Government healthcare spending will double over the next two decades.
According to CBO, real government spending on mandatory healthcare as a percentage of GDP will nearly double, from 5.6 percent in 2011 to 10.4 percent of GDP by 2035. Because healthcare cost increases cannot be contained, healthcare spending will help drive our debt from 70 percent of GDP today to 187 percent of GDP in 2035. Read more.
Our debt is causing an increased chance of fiscal crisis, like we saw in Greece.
CBO says our uncontrolled debt has increased the chances of a fiscal crisis in which investors would be unwilling to loan more money to the government. According to CBO, in the face of such a crisis, “the government would need to undertake some combination of three actions: restructuring its debt (that is, seeking to modify the contractual terms of its existing obligations); pursuing inflationary monetary policy (that is, increasing the supply of money); and adopting an austerity program of spending cuts and tax increases.” Read more.
Read about the budget proposal I support, “The Path to Prosperity,” which would put us on a path to balanced budgets without resorting to growth-killing tax hikes.
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