Fundamental Changes Needed to Federal Budget, According to CBO Director Douglas Elmendorf
CBO (Congressional Budget Office) Director Douglas Elmendorf recently told reporters at a "Christian Science Monitor" breakfast that "US fiscal policy is unsustainable" and that fundamental changes are needed to the federal budget going forward.
These words are hardly surprising, especially given recent projections made by the CBO regarding US deficit spending over the next 10 years.
The Congressional Budget Office, which is a non-partisan government agency charged with providing economic data and projections to Congress, recently released a report in which they stated that the United States will post average deficits of approximately $1 trillion between now and 2020.
These sky-high deficits will result in the United States possessing a total national debt load of about $20 trillion by 2020. This would give the country a debt-to-GDP ratio of about 90%, a number that is worryingly high and very expensive to maintain.
The world isn't going to loan the United States $10 trillion over the next ten years, meaning that the US will need to continue to print dollars in order to fund their massive deficits. This, as you can probably guess, is going to be disastrous for the country over the long-term.
Everybody knows that it's not healthy for the United States to be posting trillion dollar deficits as far as the eye can see, but what is the country going to do about it?
There are two ways to bring these deficits in line. They are:
1) cut spending
2) raise taxes
Both options are extremely unpopular, but one (or a mix of both) will be necessary in order to head off these massive deficits, which, left unchecked, will eventually cripple the nation.
According to Elmendorf, "spending on Medicare, Medicaid and Social Security, plus defense programs and debt interest, will exceed the rest of the federal budget in 10 years if most of the 2001 and 2003 tax cuts are extended".
It's easy to point the finger of blame at the current Administration, but the fact is that the United States has been on the path towards fiscal disaster for a long while now.
It's easy to point out the problem - everybody knows that the United States is seemingly spinning out of control right now. The $64,000 question is - what do we do about it?
Should the United States aggressively start cutting spending in order to balance their books, or are higher (much higher) taxes the answer? The idea of a VAT (Value Added Tax) in the United States has been floated by some pretty prominent people, for example. The fact that this idea has gained some traction should tell you just how dire things are right now.
The one thing that most everybody can probably agree upon is that fundamental changes need to occur in order to fix this problem. Will this actually happen though? Can we change things before the country reaches its "tipping point"? Or have we already passed the "tipping point"?
I'm eager to see how Congress attempts to figure out this problem in the years ahead. My guess is that they won't do enough until it's far too late..
Source: TheHill.com - Congressional Budget Office: Fiscal Policy is Unsustainable
Filed under: The Economic Meltdown