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Why The National Debt Crisis Is Way Worse Than You Think

If Washington is deadlocked now, how will it deal with the much bigger debt problems that lurk in the decades to come?

Business Week Magazine

By Peter Coy

Listen to the podcast with the author - recommended

There is a comforting story about the debt ceiling that goes like this: Back in the 1990s, the U.S. was shrinking its national debt at a rapid pace. Serious people actually worried about dislocations from having too little government debt. If it hadn’t been for two wars, the tax cuts of 2001 and 2003, the housing meltdown, and the subsequent financial crisis and recession, the nation’s finances would be in fine condition today. And the only obstacle to getting there again, this narrative goes, is political dysfunction in Washington. If the Republicans and Democrats would just split their differences on spending and taxes and raise the debt ceiling, we could all get back to our real lives. Problem solved.

Except it’s not that way at all. For all our obsessing about it, the national debt is a singularly bad way of measuring the nation’s financial condition. It includes only a small portion of the nation’s total liabilities. And it’s focused on the past. An honest assessment of the country’s projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse.

That’s why the posturing about whether and how Congress should increase the debt ceiling by Aug. 2 has been a hollow exercise. Failure to increase the borrowing limit would harm American prestige and the global financial system. But that’s nothing compared with the real threats to the U.S.’s long-term economic health, which will begin to strike with full force toward the end of this decade: Sharply rising per-capita health-care spending, coupled with the graying of the populace; a generation of workers turning into an outsize generation of beneficiaries. Hoover Institution Senior Fellow Michael J. Boskin, who was President George H.W. Bush’s chief economic adviser, says: “The word ‘unsustainable’ doesn’t convey the problem enough, in my opinion.”

Even the $4 trillion “grand bargain” on debt reduction hammered out by President Barack Obama and House Speaker John Boehner (R-Ohio)—a deal that collapsed nearly as quickly as it came together—would not have gotten the U.S. where it needs to be. A June analysis by the Congressional Budget Office concluded that keeping the U.S.’s ratio of debt to gross domestic product at current levels until the year 2085 (to avoid scaring off investors) would require spending cuts, tax hikes, or a combination of both equal to 8.3 percent of GDP each year for the next 75 years, vs. the most likely (i.e. “alternative”) scenario. That translates to $15 trillion over the next decade—or more than three times what Obama and Boehner were considering.

Continue reading at Business Week...



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Reader Comments (15)

$202 trillion? "What can't be paid back won't be paid back". Someone's going to end in the RED.
Jul 29, 2011 at 1:00 AM | Unregistered CommenterTR
Articles that talk about things that might possibly happen by the end of the decade or later will lose the attention of most people in immediate crisis. People want to know what's happening between when school starts next month and the coming year-end holidays economically. Trying to make them think years ahead will never work.
Jul 29, 2011 at 1:30 AM | Unregistered Commenterlili
They are going to tax all of us to death, that is how. Creative sneaky taxes that you don't know you are being taxed by. Meanwhile they will continue to spend and the rich will continue not to pay.

And mainstreet will continue to wonder why there is less money in there pockets...
Jul 29, 2011 at 4:43 AM | Unregistered CommenterS. Gompers
They shouldn't even think about raising taxes until they agree to control government spending.they are just going to raise taxes and keep their old ways.
Jul 29, 2011 at 2:19 PM | Unregistered Commenterdebt crisis

I agree.
Jul 29, 2011 at 3:29 PM | Registered CommenterDailyBail
A 10 % "Flat Tax" would fix everything. It will neaver fly with the goverment.......................?
Jul 29, 2011 at 9:57 PM | Unregistered CommenterTexas Dar
Must be a Tea Party member. A flat tax is the worst of all thoughts for taxes. The poor who spend almost all they earn on food, shelter, etc will bear a greater brunt than the millionaire. Let me also guess, I bet you call yourself a Christian, you are anything but a follower of him. You worship the almighty $ sign, you evidently have never read a red-letter Bible.(in case you don't know TexasBar the red letters are the words that Christ spoke) Please read his words..He wanted his followers to care for the poor, sick and elderly. Also read that part where it says that it will be easier for a rich man to go through the eye of a needle than for him to get into heaven.
Jul 29, 2011 at 10:29 PM | Unregistered CommenterTurk
If we did away with the Bush tax cuts for the rich ended the wars in Iraq, Afghanistan, Libya, etc and did away with the tax breaks for the Oil Company's that ExxonMobil and others get (not ExxonMobil's profits rose over 40%) do they really need any tax breaks when they are the largest corporation in the US?
Jul 29, 2011 at 10:33 PM | Unregistered CommenterTurk
That's only part of the problem. If we include future liabilities, national debt may reach $77 trillion. If we consider total debt, it's more than $57 trillion. In addition, U.S. banks are exposed to over $370 trillion in unregulated derivatives, part of a global market of more than a quadrillion dollars, and the largest component of money supply.
Jul 30, 2011 at 8:20 AM | Unregistered CommenterMonk
If we did away with the Bush tax cuts


They are now the Obama tax cuts for the rich. Remember the legislation from earlier this Spring extending them?
Jul 30, 2011 at 4:25 PM | Registered CommenterDailyBail
Sorry, anyone with 7-penny's of brain cells know thAre is a cut-off point as we have now. Under a certian point the hard workin poor, still would pay NO Tax's........................

Aint No Fuckin Way, i would take money out of the poor workin mans pay check. Everythime a 10
5 flat tax is brought up there is a "Cut Off Line".............................

How old are you.........................Z is our little child, but that may have changed now.......................

Next Question...........................but you did make a good point, Sir, the time is now to change the way the
Aug 1, 2011 at 9:15 PM | Unregistered Commenter"Texas Dar"
GE, and Friends pay not a frickkin thing. Just think of the money if we took away all the breaks from the "Fat Cats"...........and the poor'er workers would still pay not a thing.........................

The Bush Cuts were for the ones that were tax'ed to much to cover for the ones that Cheat the system.......Bush knew the goverment over did it just like Obama Head-Less wanted to do this time.......................

So he gave them a break. Now Obama wants that money back becouse they do pay what the goverment asks.......Thats how a 10% flat tax to all buisness would take away the ones that get out of paying their share.......

But that is just my little thought on why Bush gave buisness a tax break in the first place.....Make everyone pay thAre fair share........................."sHIT", Thats not how the Fat Cat Bankers planed it, is it............Rich get a free lunch, and the upper buisness and the workin class pay the bills.....................

We dont pay 10% but were almost there. I would more than gladly pay my fair share evan if it means 2% more......... When we eat the same Human Grade Pet Food, $$$$$$$$$$ as our kittys, I will be glad to say were poor and could we get a break........?
Aug 1, 2011 at 11:35 PM | Unregistered Commenter"Texas Dar"
Sorry, but corporations that make as much money as they do should be paying at least 35%.

By XXX, the richest 1 percent will own 40 percent of the nation's wealth. The bottom 93 percent will have experienced a 4 percent drop in real disposable per-capita income between XXXX. During the Bush years the total income rise was $750.00 for the average tax payer, taking into account a low factor for inflation of 3% they actually fell behind $12,000

Individual worker productivity rises an astonishing 43 percent from 1919 to 1929. But the rewards are being funneled to the top: the number of people reporting half-million dollar incomes grows from 156 to 1,489 between 1920 and 1929, a phenomenal rise compared to other decades. But that is still less than 1 percent of all income-earners.

Sounds strange but the above was talking about the cause of the Great Depression. As strange as it may seem, the way the nation got out of the Depression was to RAISE tax rates on the millionaires. When we came out of the Depression we had one of the greatest expansions in modern history lasting until the 70's. When the support for Israel led the US into another depression caused by the Oil Embargo.
Aug 2, 2011 at 5:12 PM | Unregistered CommenterBo
Then thats it.................................."Fu*K It.....im raising me debt celling like the Democrats- Rep. and Obama can.. From now on every frickkin credit card we get in the mail, and thAre are a shit load again, im gona max it out and send the bills to Obama.............

Were 2 paychecks from losing our cabin. I did everything the right way. Lets see how good it feels doing it the goverment way..........My credid scores are, 789, 798, 800, now lets see how fast i can bring them down to goverment leavles.......... 000, 000, 000, that should do the trick.

I worked all my life paying my bills before i evan got them to get a score that high, lets see how good i can turn them around...... Im looking for a good used airplane now...........................
Aug 2, 2011 at 10:35 PM | Unregistered Commenter"Texas Dar"
Be careful Dar. I understand your frustration.
Aug 2, 2011 at 11:58 PM | Registered CommenterDailyBail

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