CBO Warns Of Grim Future Ahead

The CBO issued a report that should be sounding alarm bells all over the place. It says that the US National Debt is unsustainable and could trigger a major fiscal crisis.
http://cboblog.cbo.gov/?p=1249

With U.S. government debt already at a level that is high by historical standards, and the prospect that, under current policies, federal debt would continue to grow, it is possible that interest rates might rise gradually as investors’ confidence in the U.S. government’s finances declined, giving legislators sufficient time to make policy choices that could avert a crisis. It is also possible, however, that investors would lose confidence abruptly and interest rates on government debt would rise sharply, as evidenced by the experiences of other countries.

Basically, the CBO warns that an abrupt or gradual loss of consumer confidence (which we are currently seeing) could cause interest rates to rise to the point where just servicing the interest on the national costs us 3 to 5 times what it does today.


Read the report for yourself. You can also find an excellent analysis of it here:
http://www.realclearmarkets.com/articles/2010/07/29/cbos_grim_diagnosis_enemy_is_us__98596.html

The nonpartisan Congressional Budget Office, whose job it is to make reasonable projections about the economy and budget, now says it's not the financial sector that's putting us at serious risk - it's government's almost insatiable desire to spend ever larger sums of money.

In a new report this week, the CBO grimly summarizes America's fiscal future: "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."

"Unsupportable." Let that sink in for a minute. It means we'll have no way to pay what we owe - that we as a nation will be bankrupt. Lenders won't lend to the government unless it pays exorbitant interest rates. Capital that usually goes to create new businesses and jobs will be gobbled instead by the government to pay off its debts.

Just as bad, however, is that somewhere along the way we might have the mother of all financial meltdowns, a crisis that will make the most recent one look picayune.

As the CBO put it, "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."

No doubt about it: We are in deep, deep trouble - trouble that makes Greece's woes pale by comparison.

Keep this in mind when the liberal Democrats propose yet another way to spend more money. Raising taxes won't help, nor will adding huge new regulatory schemes... That will hurt consumer confidence and could precipitate exactly the kind of abrupt drop and resulting crisis that the CBO is warning about.

We are long past the time when Congress should have begun living within its means. But there's no time like the present to start. We need to slash spending to the point where we completely eliminate the deficit, and creating a surplus to pay down the debt wouldn't hurt, either. We also need to implement spending controls that, unlike the flawed PayGo regulations, cannot be bypassed any time Congress wishes to do so.

The Democrats' plan will increase uncertainty and decrease confidence, which will be bad for us. We need a different plan... one that not even the Republicans are proposing. The time for austerity is now. Reduce spending NOW. The longer we wait, especially with the Obama administration's apparent lust to add massive spending programs at the drop of a hat, the more pain we will experience in trying to put our broken fiscal house in order.