BOMBSHELL: CBO says debt unsustainable, and raising taxes WON'T help

Little-Acorn

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It had to happen eventually. But now the cat is out of the bag, and neither political party can stuff it back in.

The Congressional Budget Office just released a statement saying:

1.) The growth of the National Debt is reaching crisis levels, and is outstripping anything the govt can do to rein it it.
2.) If govt increases tax rates, this will simply result in less economic growth and LESS tax money available to pay down the debt.

It says the exploding debt is the result of three things; the present crisis, govt spending intended to fix the crisis, and previous excessive spending (by both Dems and Republicans, though Dems did the vast majority of deficit spending).

Now the govt big spenders can no longer ignore it. The **CBO** has published this report! Nor can they claim any longer, that further borrowing taxing and spending will fix it.

It'll be interesting to see how the big-govt advocates (in both parties) spin this one. And if they can at all.

Basically, the cupboard is bare. And the govt's most trusted accounting office, is the one saying so.

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http://www.cbo.gov/doc.cfm?index=11659

Federal Debt and the Risk of a Fiscal Crisis
July 27, 2010
Economic and Budget Issue Brief

Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

Further increases in federal debt relative to the nation’s output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending, measured as a percentage of GDP, well above the levels experienced in recent decades. Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.

Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.

If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.
 
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BOMBSHELL: CBO says debt unsustainable, and raising taxes WON'T help​

It had to happen eventually. But now the cat is out of the bag, and neither political party can stuff it back in.

The Congressional Budget Office just released a statement saying:

1.) The growth of the National Debt is reaching crisis levels, and is outstripping anything the govt can do to rein it it.
2.) If govt increases tax rates, this will simply result in less economic growth and LESS tax money available to pay down the debt.

It says the exploding debt is the result of three things; the present crisis, govt spending intended to fix the crisis, and previous excessive spending (by both Dems and Republicans, though Dems did the vast majority of deficit spending).
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kids+laughing[1].jpg
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"Not only was the entire national deficit eliminated after raising taxes on the wealthy in 1993, but the economy grew so fast for the remainder of the decade that many conservative economists thought that the Fed should raise the prime interest rate in order to slow it down."
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