Exploding debt threatens America

John Taylor

Published: May 26 2009 20:48 | Last updated: May 26 2009 20:48
Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

“A government debt burden of that <100 per cent> level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1

Eisenhower.. Back then the rich carried their own weight, as did corporate.

That was the era of the middle class..when it was built and when it prospered, as did our whole nation.

as the rates went down for the rich, the debt went UP for the middle class.

we HAVE a model for what WORKS.. we just do not have the stomach to force a move back to it..

we are back to a situation where "big powers" will "rule" the world :

China
Russia
India
USA
EU

that's it

Rome, China, Persia, Tuvians, Tongans, Germany....