Exploding Debt Threatens America

[SUMG]

Pretty scary stuff in here. Possible solutions: 60% across the board tax increases or 100% inflation which would DOUBLE the price of everything:

http://www.ft.com/cms/s/0/71520770-4a2c-11...144feabdc0.html

Edited May 27, 2009 by SUMG

[oldguystudent]

Possible solutions:

New student fees. But wait! I'm not even going to use this country! Why should I be paying for it?

*Don't worry. I'm just taking the opportunity to mock the anti-stadium crowd.

[FirefightnRick]

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.

Good grief!

Rick

[hickoryhouse]

Pretty scary stuff in here. Possible solutions: 60% across the board tax increases or 100% inflation which would DOUBLE the price of everything:

http://www.ft.com/cms/s/0/71520770-4a2c-11...144feabdc0.html

another possible solution, and I know it is radical, DONT SPEND SO MUCH!!!! and that goes for both sides of the aisle.

[UNTFan23]

I thought this little nugget was interesting ...

“We inherited this mess.” The debt was 41 per cent of GDP at the end of 1988, President Ronald Reagan’s last year in office, the same as at the end of 2008, President George W. Bush’s last year in office. If one thinks policies from Reagan to Bush were mistakes does it make any sense to double down on those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr Obama leaves office?