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Red Ink Rising, December 14, 2009

Below is a summary of The Peterson-Pew Commission on Budget Reform report titled “Red Ink Rising:  A Call to Action to Stem the Mounting Federal Debt” released in December 2009.  The debt is now close to 100% of GDP and the debt continues to worsen.  I have posted this two year old material to illustrate that the situation is very serious and politicians in Washington are not serious about solving the debt problem. 

According to the Executive Summary, the public debt of the United States rose from 41% to 53% of Gross Domestic Product (GDP) in 2009.  Considering the current spending and revenue projections, the Peterson-Pew Commission expects this debt to continue to grow faster than the economy, eventually leaving a debt greater than the GDP.  The Commission calls on Congress and the Whitehouse to make serious changes to fiscal and monetary policy that will include specific policies to stabilize debt and set annual debt targets.  Without major changes in US fiscal policy, the debt will continue to grow to unprecedented levels and this will lead to a debt crisis that will have serious effects for all Americans.  In order to stabilize the debt, the Commission recommends six steps.  First, commit to stabilize the debt at 60% of GDP by 2018.  Second, develop a specific and credible debt stabilization package in 2010.  Third, begin to phase in policy changes in 2012.  Fourth, review annual progress and implement an enforcement plan.  Fifth, stabilize the debt by 2018 and lastly, continue to reduce the debt as a share of the economy over the long run.

A major contributor to the debt problem was the government’s response to the economic downturn and the decreased revenue from a shrinking GDP.  The economy will recover, but the effects on the budget may continue to be felt for the next 30 years or longer.  The government’s current high borrowing habits are not sustainable and will create a number of problems.  The interest alone from such high borrowing will continue to grow and become a larger portion of our over all debt which will lead to the crowding out of other important spending.  “An ever growing debt would likely hurt the American standard of living by fueling inflation, forcing up interest rates, dampening wages, slowing economic growth and job creation…” (p7) The greatest contributor to the ever widening gap between spending and revenue is the ever increasing government spending.  Much of this spending is due to the demographic shift toward an older population, which will call for increases in Medicare, Medicaid, and Social Security.  According to the Commission, these areas of spending will be where government can have the best chance for savings and provide opportunities to stabilize the debt.

Something must be done now because the risks of inaction are too great.  Without action, living standards could fall, interest payments will continue to grow, future investment in America will decline, the dollar could lose value, and future generations will pay for today’s spending.  The future viability of the United States and future generations of Americans depend on debt stabilization and it is the federal government’s responsibility to begin solving this problem now.

 
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Posted by on December 30, 2011 in Uncategorized

 

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