As federal debt soars, where’s all the money to come from?
As the Obama administration wrestles with how to pay for a costly revamp of the health care system and whether to spend more to spark a nearly lifeless economy, it faces shrinking fiscal room to maneuver. With each passing day, the outlook for the government’s finances grows dimmer.
Skyrocketing federal budget deficits increasingly are limiting the government’s ability to take on new financial commitments. Investors also are starting to worry about something once unthinkable: that the U.S. government could default on its debts someday.
The federal budget deficit is the annual sum of what government spends beyond what it collects in revenues. This year’s deficit is on course to balloon to a figure equivalent to 12 percent of the nation’s gross domestic product, the total annual value of all goods and services produced. That’s double the peak Reagan-era deficit, which was the post-World War II high until now.
A June study by the Brookings Institution, a center-left policy research group, found that current increases in spending and continuation of most George W. Bush-era tax cuts will combine to produce a 10-year deficit of $9.1 trillion. That will drive interest payments on the national debt — the total of accumulated annual deficits — to about 3.8 percent of the GDP by 2019.
Interest payments on the debt that high would surpass defense spending as a percentage of the GDP. Taxpayers would get nothing in return. All that spending on interest would go only to holders of government bonds who’d financed the past deficit spending.
“All of these figures are poised to rise further after 2019, implying that the situation is unsustainable,” wrote researchers William Gale and Alan Auerbach, the Brookings authors.
Source/Full Story: McClatchy
Feedback