WSJ financial op ed: "The Magnitude of the Mess We're In"

This column has five co-authors, including George Shultz, and Michael Boskin.

Worth a read (there is some policy wonkiness) if you are concerned about the future. Hit the link to get beyond the excerpt.

The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.

Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.

Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

Some of the problem can be solved by growing the economy (my opinion). But where's the growth? Hit the link for the whole article, which continues in a "Did you know?" mode.  The end has the answers to the problem, which as the authors say "are blindingly obvious."

 

Comments

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I think that both the things really matter the amount of debt and the burden of debt for debt and fiscal deficit problem. This is true that government need to get the funds to finance its expenses by borrowing or taxing.

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Debt is really a very serious problem and the government should not take it lightly, they must take it seriously. Most of the people are having debt problems nowadays. This also affects the economy of the country.

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This is really very dangerous for US economy, that the annual spending of US by the federal government now really exceeds the figure of 2007 level by just about $1 trillion. It’s really a high figure.

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I agree with you that the government should get the fund to finance its expenditure by borrowing or taxing. I have also noticed and heard that U.S. income tax system is really very progressive.

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I really don’t believe that the annual spending of US by the federal government now really exceeds the figure of 2007 level by just about $1 trillion. It’s really a high figure. This could be harmful United State.

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