The CBO Warns the Nation; Is Anybody Listening?
Warning signs are everywhere — most carefully phrased and nuanced, but warnings, nevertheless. Greece and, closer to home, California are painful reminders of what could happen. CNBC is reporting that the Dow is repeating patterns that prevailed just before the Great Depression. The U.S. workforce suffered one its sharpest declines ever — a drop of 652,000 — in June. Economists claim that “wages are flirting with deflation.” It’s hard to find good news on the financial front.
Now, the Congressional Budget Office (CBO) just released its “Long-Term Budget Outlook,” to confirm what people already feared: the national debt is devastating for the future of America. According to the CBO, “the federal government has been recording the largest budget deficits, as a share of the economy, since the end of World War II.” As a result, the CBO paints a very bleak picture of our nation’s future prospects. Further, as the world’s remaining superpower, the terrible financial condition of this country affects all other nations — a fact that makes the CBO report even more alarming.
To compound the alarm, the CBO admits to understating the severity of the problem because their report does not include the negative impact that “substantial amounts of additional federal debt” would have on other aspects of the nation’s economy.
We’ve been warned; is anybody listening?
The CBO made it clear that ObamaCare — the health reform package that was shoved down the nation’s throat — did not “diminish” the problem; plus the economists at the CBO think that the President’s pledge of tax cuts for the middle class will make matters worse and that health care costs will continue to “spiral out of control.” Indeed, some analysts believe the Obama health care package locked in the unsustainable health care spending path. These expert evaluations confirm my recent report, Obamanomics, in which I noted: “Americans are learning that ObamaCare will pile on to an already insurmountable debt. ... It is obvious that ObamaCare is an unmitigated disaster for both our health care system and the nation’s fiscal future.” The CBO does not mention the failure of the stimulus bill — The American Recovery and Reinvestment Act — that was supposed to create jobs, but unemployment remains close to double digits, and there has been no impact on either employment or payrolls. In short, the national debt is pushing us toward a fiscal crisis, and ObamaCare is expected to add $10 trillion to that debt over the next decade.
Almost no one questions the assertion that ObamaCare and its impact on the national debt is devastating for the future of America.
Nile Gardiner, a D.C.-based foreign affairs analyst for the British Telegraph, wrote, “America is sinking under Obama’s towering debt.” Thomas R. Eddlem, in the New American, wrote, “CBO Labels Current U.S. Debt Path ‘Unsustainable.’” While such headlines are alarmist; they are accurate. While Greece has already faced a financial meltdown and the UK is launching austerity measures to deal with their debt crisis, the Obama administration is ignoring the warning signs about the nation’s debt crisis and downplaying the devastating report from the CBO.
The CBO report notes that the federal debt will likely reach 62 percent of GDP by the end of this year. One projection is that the debt to GDP ratio will be 80 percent by 2035, and another projection is far bleaker — 87 percent by 2020. That later more likely scenario means “the growing imbalance between revenues and noninterest spending, combined with spiraling interest payments, would swiftly push debt to unsustainable levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2025 and would reach 185 percent in 2035.” As the CBO noted, such numbers are “uncharted territory.” Put simply and appallingly, these numbers mean that “health care costs, Social Security and interest on the national debt will exceed all tax money coming in to the federal government by 2035.”
Such an unheard of level of debt to GDP would “reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment — which, in turn, would lower income growth in the United States. Growing debt would also reduce lawmakers’ ability to respond to economic downturns and other challenges.”
In other words, the U.S. would face an unprecedented fiscal crisis that would lead, inevitably, to America’s decline and to international instability of unimaginable dimensions. John Shaw, at MarketNews.com, described previous CBO reports as seeming like a car headed “steadily, inexorably, toward a cliff and nobody seems able or willing to grab the steering wheel or slam on the brakes. Ahead a calamitous event looms.” Shaw claims that this year’s report is similar, only worse. “The car is still moving toward great danger, the cliff seems closer, the fall ahead seems more dangerous than ever — and the margin for error is almost gone.”
Sadly, Shaw’s dismal picture is not sobering enough. Douglas W. Elmendorf, director of the CBO, noted that the nation’s debt to GDP surged from 40 percent to 62 percent in just two years. Elmendorf’s most realistic scenario is 87 percent debt to GDP by 2020, 223 percent by 2040, and a “mind boggling” 854 percent by 2080. All this, Elmendorf said, “could include higher interest rates, more foreign borrowing, less private investment and lower income growth, if not a full-blown fiscal crisis.”
Note that nobody is talking about dismantling the out-of-control entitlement system, including ObamaCare, which is at the root cause of this crisis. Instead, the proposed “cures” include continuing with business as usual and “piling on” America’s already-beleaguered middle class. Those who recommend increasing revenues and cutting spending acknowledge that it would be an intricate balancing act where the wrong action at the wrong time could make the “sharp deterioration in the fiscal situation” even worse. The situation is bad. And, as Robert Reich, former U.S. Secretary of Labor, said, “The booster rockets for getting us beyond it are failing.”
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