Since I posted yesterday about one cause of our impending financial crisis, here’s another issue mentioned by the Congressional Budget Office.
I have written about how using fantasy figures as the basis for pensions is sending us into a financial crisis, but there are other problems as well. Even the Congressional Budget Office is admitting to the seriousness of our situation.
CNS News reports, “CBO: Debt Headed to 103% of GDP; Level Seen Only in WWII; ‘No Way to Predict Whether or When’ Fiscal Crisis Might Occur Here.”
Testifying in the U.S Senate yesterday, Congressional Budget Office Director Keith Hall warned that the publicly held debt of the U.S. government, when measured as a percentage of Gross Domestic Product, is headed toward a level the United States has seen only once in its history—at the end of World War II.
To simply keep the debt at the high historical level where it currently sits—74 percent of GDP–would require either significant increases in federal tax revenue or decreases in non-interest federal spending (or a combination of the two).
Historically, U.S. government debt as a percentage of GDP hit its peak in 1945 and 1946, when it was 104 percent and 106 percent of GDP respectively.
In 2015, the CBO estimates that the U.S. government debt will be 74 percent of GDP. That is higher than the 69-percent-of-GDP debt the U.S. government had in 1943—the second year after Pearl Harbor.
By 2039, CBO projects, the debt will increase to 101 percent of GDP and by 2040 to 103 percent GDP.
At that point, Hall told the Senate Homeland Security and Governmental Affairs Committee, the “debt would still be on an upward path relative to the size of the economy.”
Chances of our political class taking drastic action to avert this fate: zero.
There’s no point in pretending otherwise. Politicians will continue to want to get into office and will find that dealing with economic reality hinders their ability to bribe voters to put them into office. The chance of there being enough people willing to do the right thing and who can get voters to keep them in office while they do the right thing, is negligible. By the time politicians are no longer able to use debt to pretend the United States can pay its bills, it will be too late to do anything about it.
Eventually, the nation would face a crisis—with wary investors demanding “much higher interest” rates to buy U.S. government debt.
“How long the nation could sustain such growth in federal debt is impossible to predict with any confidence,” testified Hall. “At some point, investors would begin to doubt the government’s willingness or ability to meet its debt obligations, requiring it to pay much higher interest costs in order to continue borrowing money.
“Unfortunately, there is no way to predict confidently whether or when such a fiscal crisis might occur in the United States,” he said. “In particular, as the debt-to-GDP ratio rises, there is no identifiable point indicating that a crisis is likely or imminent. But all else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.”
Democracy seems to be the political system in which all the people are made to believe that mass suicide is a rational policy.