Economics

Robert Samuelson: "burgeoning debt could trigger a future financial crisis"

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Washington Post econ columnist Robert J. Samuelson is flabbergasted both by the extent of President Obama's fiscal recklessness, and the ease with which he's getting away with it:

Just how much government debt does a president have to endorse before he's labeled "irresponsible"? Well, apparently much more than the massive amounts envisioned by President Obama. […]

By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.

But wait: Even these totals may be understated. By various estimates, Obama's health plan might cost $1.2 trillion over a decade; Obama has budgeted only $635 billion. Next, the huge deficits occur despite a pronounced squeeze of defense spending. From 2008 to 2019, total federal spending would rise 75 percent, but defense spending would increase only 17 percent. Unless foreign threats recede, military spending and deficits might both grow. […]

Except from crabby Republicans, these astonishing numbers have received little attention—a tribute to Obama's Zen-like capacity to discourage serious criticism. […]

At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending—or create bigger, unsustainable deficits. By the CBO's estimates, interest on the debt as a share of federal spending will double between 2008 and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by "crowding out" private investment.

At worst, the burgeoning debt could trigger a future financial crisis. […]

The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama's. There would almost certainly have been a loud outcry: "McCain's Mortgaging Our Future." Obama should be held to no less exacting a standard.

Whole thing here. Related Reason content: Econ columnist Veronique de Rugy on Obama's irresponsible first budget, and on just when deficits do matter. And if you haven't already, check out Samuelson's "Lessons from the Great Inflation" from our January issue.