Thursday, June 14, 2012

Not quite.

A fiscal crisis is not the problem.  Once again, holding onto analogies to "household" economics (wherein actors must "get" currency in order to spend it) produces erroneous conclusions.  In the current environment, the stock or level of debt is of little consequence.  Now, transport the same levels to an economy with vastly greater GDP growth and there will indeed be inflationary pressures.  However, there would still be no "fiscal crisis".

In addition, the CBO doth protest too much...what happened after 1946?

The U.S. government risks a fiscal crisis unless it makes significant changes in tax and spending policies, the Congressional Budget Office said.
The nonpartisan agency said that without policy changes, the national debt within 15 years will top the historical peak set after World War II. In 1946, government debt amounted to 109 percent of the economy. This year, it’s projected to reach 70 percent of the gross domestic product, up from 40 percent in 2008, according to CBO.
By 2037, the debt would be almost twice the size of the economy, the agency said. That would mean higher interest rates, slower economic growth and far more painful choices for lawmakers than they face today.

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