red states rule
01-28-2011, 06:59 PM
Just when you thought things could not get any worse....
I’ve just spent a snowed-in day plowing through the Congressional Budget Office’s latest ten-year budget and economic outlook. The short-term outlook is grim enough, with an estimated deficit of $1.5 trillion—a new record, and the third consecutive 13-figure result. As for the long-term outlook, it’s not as bad as you’ve read; it’s worse.
Here’s why the headlines understate the gravity of our situation. CBO is required to use current law as the basis for its estimates—to assume, for example, that all the Bush tax cuts will expire at the end of 2012, that Medicare payments to physicians will be cut sharply, and that the alternative minimum tax will be allowed to affect millions more Americans. Using these assumptions, taxes as a share of GDP would by allowed to increase by five percentage points by 2014 and would keep on rising thereafter, we’d have a cumulative deficit of about $7 trillion dollars over the next decade, and debt held by the public would increase from 62 percent to 77 percent of GDP. Using more politically realistic assumptions, the cumulative deficit would be about $12 trillion, and debt held by the public would reach 97 percent of GDP, the highest level since 1946 (when it was headed down, not up).
I don’t know many economists, liberal or conservative, who view this prospect with equanimity. The CBO certainly doesn’t; its report states that “Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have ... negative economic consequences for the United States”—among them, reduced investment, output, and incomes; less room for maneuver when the next economic crisis erupts; and worst of all higher probability that investors would eventually lose confidence in our country’s creditworthiness and demand much higher interest rates. While no one can predict when that “tipping point” might occur, the report notes that as the global economic recovery gathers strength, investors will be less inclined to purchase U.S. government debt as a safe haven and will focus instead on its rising risks.
http://www.tnr.com/article/politics/82350/state-of-union-fiscal-disaster
I’ve just spent a snowed-in day plowing through the Congressional Budget Office’s latest ten-year budget and economic outlook. The short-term outlook is grim enough, with an estimated deficit of $1.5 trillion—a new record, and the third consecutive 13-figure result. As for the long-term outlook, it’s not as bad as you’ve read; it’s worse.
Here’s why the headlines understate the gravity of our situation. CBO is required to use current law as the basis for its estimates—to assume, for example, that all the Bush tax cuts will expire at the end of 2012, that Medicare payments to physicians will be cut sharply, and that the alternative minimum tax will be allowed to affect millions more Americans. Using these assumptions, taxes as a share of GDP would by allowed to increase by five percentage points by 2014 and would keep on rising thereafter, we’d have a cumulative deficit of about $7 trillion dollars over the next decade, and debt held by the public would increase from 62 percent to 77 percent of GDP. Using more politically realistic assumptions, the cumulative deficit would be about $12 trillion, and debt held by the public would reach 97 percent of GDP, the highest level since 1946 (when it was headed down, not up).
I don’t know many economists, liberal or conservative, who view this prospect with equanimity. The CBO certainly doesn’t; its report states that “Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have ... negative economic consequences for the United States”—among them, reduced investment, output, and incomes; less room for maneuver when the next economic crisis erupts; and worst of all higher probability that investors would eventually lose confidence in our country’s creditworthiness and demand much higher interest rates. While no one can predict when that “tipping point” might occur, the report notes that as the global economic recovery gathers strength, investors will be less inclined to purchase U.S. government debt as a safe haven and will focus instead on its rising risks.
http://www.tnr.com/article/politics/82350/state-of-union-fiscal-disaster