Ignoring the Debt Problem

[elleng]

By PAUL A. VOLCKER and PETER G. PETERSON

*Yes, this country can handle the nearly $600 billion federal deficit estimated for 2016. But the deficit has grown sharply this year, and will keep the national debt at about 75 percent of the gross domestic product, a ratio not seen since 1950, after the budget ballooned during World War II.

Long-term, that continued growth, driven by our tax and spending policies, will create the most significant fiscal challenge facing our country. The widely respected Congressional Budget Office has estimated that by midcentury our debt will rise to 140 percent of G.D.P., far above that in any previous era, even in times of war.

Unfortunately, despite a brief discussion during the final presidential debate, neither candidate has put forward a convincing plan to restrain the growth of the national debt in the decades to come. . .

Our current debt may be manageable at a time of unprecedentedly low interest rates. But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending. There would be no room for the infrastructure programs and the defense rebuilding that today have wide support.

It’s not just federal spending that would be squeezed. The projected rise in federal deficits would compete for funds in our capital markets and far outrun the private sector’s capacity to save, to finance industry and home purchases, and to invest abroad.

Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the “kindness of strangers” who may not be so kind as the I.O.U.s mount up.

We can’t let that happen — . . .

Take some advice from two observers who have been around for a while: The long term gets here before you know it.'

http://www.nytimes.com/2016/10/22/opinion/ignoring-the-debt-problem.html?

[Warpy]

1. Closing loopholes and raising taxes at the top will help, as will

a transaction tax on Wall Street, something that is many decades overdue. However, what this country really needs to swell the coffers is higher wages at the bottom.

Many workers pay no or even negative Federal income tax because their wages are too low. Get that minimum wage up to a Spartan but livable level, and other wages will rise along with it (worked that way for years). That's the way to increase revenue for all sorts of things, from the Federal tax to Social Security and Medicare, to funding at the state and local levels.

It's funny how many things come back to the depressed wages in this country being a large part of all fiscal woes.

[orwell]

2. What a steaming pile...

...from the usual "The Sky is Falling" debt hawks.

I have been listening to this trope most of my life and once actually believed it.

It only plays with the masses who don't understand the difference between sovreign debt and private debt.

Unfortunately this applies to many central bankers as well.

[Beearewhyain]

3. Paul Krugman's Response

"There was a time, not long ago, when deficit scolds were actively dangerous — when their huffing and puffing came quite close to stampeding Washington into really bad policies like raising the Medicare age (which wouldn’t even have saved money) and short-term fiscal austerity. At this point their influence doesn’t reach nearly that far. But they continue to play a malign role in our national discourse — because they divert and distract attention from much more deserving problems, depriving crucial issues of political oxygen."

"You saw that in the debates: four, count them, four questions about debt from the CRFB, not one about climate change. And you see it again in today's Times, with Pete Peterson (of course) and Paul Volcker (sigh) lecturing us about the usual stuff."

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