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Thursday, July 29, 2010

The CBO and the coming debt crisis. Why we need policy changes.

The Coming Debt Crisis
Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt hasbeen the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

Further increases in federal debt relative to the nation’s output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place. The aging of the population

Who will really service the debt

and rising costs for health care will push federal spending, measured as a percentage of GDP, well above the levels experienced in recent decades. Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. In addition, if the
payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising
debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.

This precisely why conservatives are upset with the direction this administration is going. This is why many were upset when the door was open with TARP.

As we know in our personal lives, once you accumulate excessive debt, you are at the mercy of your debtors and you spend more and more of your income trying to maintain that debt load. A change in the interest rate of that debt can destabilize an already tight budget. In this case, one of the worst things you can do is take on additional debt. Especially if the additional debt is not for necessities. In other words, it's no time to fund additional "projects", but rather cut back on those projects/expenses you don't need. Generally, speaking funding unnecessary "projects/expenses" will lessen your ability to fund necessary projects or expenses.

Additionally, when you have excessive debt, you use the resources you have to try to pay it down.

The federal government under Obama is taking on additional debt under the guise of 'stimulus'. All they are doing is taking money out of the economy which could be more wisely spent for some uncertain short term bump. Additionally, by tying up more of our future revenue to pay for the 'stimulus', they are mortgaging/risking our future. This is the exact opposite of what we need to do.

Furthermore, we have natural resources such as oil that we could exploit to bring sorely needed capital into our economy. Instead, his BP-spill rhetoric aside, the Obama administration has shown a general distaste if not hostility towards exploiting natural resources like oil.

If it wasn't my country, I'd almost find the idiocy comical.

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