[Swiftwater Gazette] Debt

[Brad Haslett]

Last post before heading out the door.  The Washington Post is
starting to worry, that's your sign! (article below).  Here's some
quick links I don't have time to comment on.  The "handwriting is on
the wall".  It will be interesting to hear what the Chinese have to
say.  Or not.

Brad

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http://www.ibdeditorial.com/IBDArticles.aspx?id=330912782903148

http://www.cnbc.com/id/31535428

http://finance.yahoo.com/news/Foreign-demand-for-US-apf-15524501.html?sec=topStories&pos=2&asset=&ccode

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLpv3.MFL1Oc

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The Debt Tsunami
The CBO's latest warning on the long-term deficit is scarier than ever.

Sunday, June 28, 2009

THE CONGRESSIONAL Budget Office has a tough job: to provide America's
lawmakers with a reality check on their tax and spending plans. Not
surprisingly, the CBO's projections are not always received
cheerfully. Both President Obama and leading congressional Democrats
were less than thrilled when the CBO estimated that the costs of
universal health coverage would be much higher than advertised. To be
sure, projecting the cost of legislation involves making assumptions
and constructing models that may or may not prove accurate 10 years
down the road. Nonetheless, the CBO, with its tradition of scholarly
independence, is the best available arbiter, and Congress must heed
its numbers -- like them or not.

Now comes the CBO with yet more news of the sort that neither Capitol
Hill nor the White House is likely to welcome: its freshly released
report on the federal government's long-term financial situation. To
put it bluntly, the fiscal policy of the United States is
unsustainable. Debt is growing faster than gross domestic product.
Under the CBO's most realistic scenario, the publicly held debt of the
U.S. government will reach 82 percent of GDP by 2019 -- roughly double
what it was in 2008. By 2026, spiraling interest payments would push
the debt above its all-time peak (set just after World War II) of 113
percent of GDP. It would reach 200 percent of GDP in 2038.

This huge mass of debt, which would stifle economic growth and reduce
the American standard of living, can be avoided only through spending
cuts, tax increases or some combination of the two. And the longer
government waits to get its financial house in order, the more it will
cost to do so, the CBO says.

The CBO's new long-term forecast is considerably more pessimistic than
the one it issued 18 months ago, mostly because of the recession,
which has driven the budget deficit above 12 percent of GDP. But the
report makes clear that the recent economic downturn did not cause the
government's predicament and that the situation will not necessarily
improve once the economy does. The principal cause of long-term fiscal
distress is the aging of the U.S. population, coupled with rising
health-care costs -- which, together, will drive spending on Medicare,
Medicaid and Social Security to new heights. Unchecked, federal
spending on Medicare and Medicaid combined will grow from almost 5
percent of GDP today to almost 10 percent by 2035 -- and to more than
17 percent of GDP by 2080.

Like his predecessors, Mr. Obama is aware of this issue. Like them, he
has promised a plan to deal with it. And like them, he has not come up
with anything credible yet. It's time for that to change.