Debt Becomes Us
It's Monday morning. Time for another reminder about the coming budgepocalypse!
How big and bad is the U.S. debt, and how big and bad is it likely to become over the next decade? The President's budget expects it to reach 77 percent of GDP by 2020, which is far above the generally-accepted healthy threshold of 60 percent of GDP. This is the best-case scenario, which, given Washington's history of bloated budgeting, means you can safely ignore it. The CBO, on the other hand, projects that publicly held debt will equal 90 percent of GDP by 2020. And according to economists Carmen Reinhart and Ken Rogoff—whose recent history of fiscal crises, This Time Is Different, is among the most thorough and influential takes on how economies weigh themselves down with debt—it's at that 90 percent point when things get really scary. Growth slows, and the economy becomes more likely to suffer shocks. Federal interest payments climb ever higher. And as that happens, the country becomes more and more likely to lose its triple-A credit rating—which is sort of like being put on economic probation (in other words, really bad news).
But what if we hit the 90 percent threshold even faster? The CBO's headline figure only total up publicly-held debt. But if you look at the government's gross debt, the timeline for the budgepocalypse is even shorter. In fact, we may already be there: The CBO expects gross central government debt to hit 94 percent this year. And it's expected to keep growing, too. This morning, Bloomberg is reporting that total debt could could hit 100 percent of GDP by 2012, according to IMF figures. Maybe we all get some sort of award when we finally owe more than we produce in a year? Or maybe we just keep shrugging our shoulders and scratching our heads and setting up bipartisan commissions to make it look like we're doing something.
In other news, according to the Wall Street Journal, some folks in Washington aren't quite sure whether to keep borrowing money in order to fund more stimulus programs or start cutting spending. But for the Obama administration, it's not that tough a decision: "The priority remains stimulating economic growth through continued spending." Fiscal responsibility!