Capitalism, economy & financial well-being in America, Other (abstracted) Views

Excerpts From: A debt crisis is on the horizon – The Washington Post

April 4, 2018

Excerpts from: A debt crisis is on the horizon – The Washington Post

The writers are senior fellows and economists at the Hoover Institution.  Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor

“President Trump’s recently released budget … projects that this year, a year of relatively strong economic growth, low unemployment and continued historically low interest rates, the deficit will reach $870 billion, 30 percent greater than last year.

…current tax and spending patterns imply that annual deficits will steadily increase, approaching the $1 trillion mark in two years and steadily rising thereafter as far as the eye can see.

Unless Congress acts to reduce federal budget deficits, the outstanding public debt will reach $20 trillion a scant five years from now, up from its current level of $15 trillion.

Rising interest rates and increasing deficits threaten to build upon each other to send public debt spiraling upward even faster.  …higher interest costs will have to be financed by even more debt. More borrowing puts more upward pressure on interest rates, and the spiral continues.

If interest rates were to rise to 5 percent the interest cost alone on the projected $20 trillion of public debt would total $1 trillion per year.  Such high interest payments would crowd out financing of needed  critical government activities.

Debt crisis comes without warning, like an earthquake, as short-term bondholders attempt to escape fiscal carnage.

If Congress acts now, it can avoid a fiscal collapse while continuing to provide help to people who need it. If Congress waits for a crisis — which may come when the United States needs suddenly to borrow significantly to address a financial meltdown, recession or war — the result will be fiscal and economic chaos, as well as painfully sharp cuts to programs that people rely on.

Photo by Alan Cleaver

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