Monday, March 8, 2010

HOT: CBO’s Elmendorf: U.S. Fiscal Policy on Unsustainable Path

File under: You Have to Be Out of Your Mind to Own Long-Term U.S. Treasury Securities

Kelly Evans for WSJ reports:
The U.S. federal budget deficit is on a trajectory that poses “significant economic risks” and will become unsustainable, Douglas Elmendorf, director of the Congressional Budget Office, said on Monday.

In a presentation delivered before the National Association for Business Economics, Mr. Elmendorf noted that the choices needed to address the medium and long-term budget deficit will be “larger and more fundamental” than in the past.

“U.S. fiscal policy is on an unsustainable path that can’t be resolved through minor tinkering,” he said. “The problem posed by the federal budget deficit not at its current level but on this trajectory… poses a growing risk to the recovery.”

Mr. Elmendorf said that if current tax policy is extended — including the tax cuts enacted by President George W. Bush in 2001 and 2003 which look increasingly likely to be extended beyond their 2010 expiration — the deficit will swell from the $6 trillion baseline forecast by 2020 to just shy of $10 trillion.

In addition, the debt held by the public with current tax policies extended would soar to 90% of GDP by 2020, Mr. Elmendorf said, making the U.S. public debt load one of the world’s highest.
“The U.S. is entering unfamiliar territory in its level of public debt,” said Mr. Elmendorf. “It will be larger over the next decade than it’s been in half a century… and also unfamiliar by the standards of other developed countries.”
This analysis/warning is on target. But the likely Obama solution to this crisis will be to raise taxes and expand government control of the economy. This, of course, will suffocate the America we all know.

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