[Rushtalk] national debt crisis

John A. Quayle blueoval57 at verizon.net
Sat Jul 19 22:13:18 MDT 2014


Another warning that a national debt crisis is looming

It's no longer popular in Washington these days 
to discuss the nation's long-term debt problem, 
but a 
released on Tuesday by the 
Budget Office provided a stark reminder that a 
looming crisis is approaching, and the longer the 
nation waits to address it, the more difficult it will be to avert.

In the immediate term, with the economy doing 
better than it had been, annual deficits have 
shrunk substantially from where they were in the 
beginning of this decade. But this trend, the CBO 
has projected, will be short-lived, and deficits 
will soon be on the rise again, pushing the debt to unsustainable levels.

CBO identified the primary drivers of the rising 
debt to be the aging of the population and rising 
health care spending, a trend that was 
accelerated by 
care law due to the increase in 
spending and subsidies for individuals to 
purchase insurance on government-run exchanges. 
In addition, CBO anticipates that interest rates 
will rise from their currently low levels, further adding to the debt.

In 2007, debt held by the public was 37 percent 
of gross domestic product, and it has since 
doubled to its current 74 percent. Assuming that 
current laws remain the same, the CBO projects 
that by the time a girl born today graduates from 
college in 2036, the nation's debt will be as 
large as an entire year of U.S. economic output, and it will continue to grow.

In an alternative scenario under which Congress 
makes certain predictable policy changes, that 
point would be crossed even earlier, according to 
the CBO, merely 15 years from now.

Though Obama and his liberal supporters have 
identified insufficient levels of taxation on 
wealthier Americans as the major problem, the CBO 
report finds that revenue will increase in the 
coming decades, reaching 19.5 percent of the 
economy by 2039 -- which is significantly higher 
than the 17.5 percent average over the last four decades.

The problem is that federal spending will 
accelerate at a much faster rate, reaching nearly 
26 percent of the economy by the same year.

CBO warned that the growing debt could crowd out 
private investment and drive up interest payments 
(which, in turn, would make the debt even higher.)

In addition, the report warned, the debt problem 
would “restrict policymakers’ ability to use tax 
and spending policies to respond to unexpected 
challenges, such as economic downturns or 
financial crises. As a result, those challenges 
would tend to have larger negative effects on the 
economy and on people’s well-being than they 
would otherwise. The large amount of debt could 
also compromise national security by constraining 
defense spending in times of international crisis 
or by limiting the country’s ability to prepare for such a crisis.”

As things stand, the debt problem has become so 
severe that major reforms are needed to bring it 
down to a sustainable level. For instance, if 
lawmakers set the goal of bringing debt as a 
percentage of the economy to 39 percent by 2039 — 
the level it’s averaged over the past 40 years — 
it would require either spending cuts, tax 
increases, or some combination of both, equaling 
2.6 percent of GDP starting in 2015. That would 
represent $465 billion in that year alone, and 
then the equivalent level of savings would have 
to be generated each year for 25 years.

CBO also noted that the sooner changes are made, 
the less severe the policy changes would need to 
be. For instance, achieving the same debt 
reduction mentioned above would require annual 
savings of 3.2 percent of GDP if lawmakers waited 
until 2020, and 4.3 percent if lawmakers waited 
until 2025 (roughly translated, that would be the 
equivalent of over $700 billion in 2013 dollars.)

Obama, always reluctantly forced into the debt 
reduction conversation, has no interest in 
addressing the long-term issue. Republicans, 
meanwhile, have grown weary of debt fights and 
worry that emphasizing debt reduction is no longer a winning election issue.

Washington can ignore the problem, but that won’t 
make it go away. It will just make the solution that much harder.

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