April 25, 2014

Posts on national debt

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Tuesday, July 17, 2012 - 12:52 PM

Today Concord Coalition Co-Chair Sam Nunn, a former U.S. senator from Georgia, helped launch the Campaign to Fix the Debt.  This project is a non-partisan initiative to put America on a better fiscal and economic path.  Nunn is a member of the campaign's steering committee.  

In advance of the campaign's launch, Nunn said:

"On fiscal matters, neither political party can impose its will on the other, and that it is not likely to change after the election.  Successfully tackling our fiscal challenges requires Members of Congress to come together across party lines with a balanced plan that will strengthen the economy, reassure markets, and save future generations from an unbearable debt burden.  There are good people across the political spectrum who recognize this in putting together the Simpson  – Bowles and the Domenici  – Rivlin plans.  There are many Members of Congress who are willing to work together, but they get hit hard from both sides and need a foundation of citizen support.  The Campaign to Fix the Debt hopes to give these folks in Washington, DC and across the country the support they need to work together to put our nation's interest above political parties and to strengthen America to protect our children's...

Monday, July 2, 2012 - 10:59 AM

This post was co-authored with Louise Mackey, intern from the Washington Ireland Program 

Interest rates are at historically low levels, making borrowing very affordable for consumers -- and the United States government. When it issues debt, the federal government, like any other borrower, pays interest. This is how the government finances its annual budget deficits.

Why are interest rates so low now?

There are two primary reasons. First, during the recession there was less demand for credit. And to combat this, the Federal Reserve brought interest rates down to spur borrowing. Second, in response to the global economic slowdown, investors around the world have been desperate to place their money in a safe haven -- and U.S. Treasuries are still considered the safest investment in the world.

Interest rates are projected to stay at or near historic lows over the next two years as the economy continues to recover. Eventually, though, interest rates will begin to return to normal levels as economic growth puts inflationary pressure on the economy. This normalization of rates will increase the government’s borrowing costs. Those costs will also be going up simply because the government is borrowing...

Tuesday, May 15, 2012 - 8:34 AM

Throughout this painfully prolonged economic recovery, economic developments as they are reported have often been confusing. They seem to send mixed messages about the best courses of action for fiscal policy.

Sometimes we are told that more personal spending (consumption) would be good, and sometimes we are told we need to save more. Sometimes we are told that we need to reduce the government budget deficit, and sometimes we are told that continued deficit spending is needed to avoid a double-dip recession.

So what should we be doing with fiscal policy right now -- consolidating or stimulating?

The most recent economic news is that the economy’s overall growth rate has slowed and is falling short of expectations (2.2 percent annual growth rate of GDP for first quarter of 2012 compared with 3 percent in the prior quarter and 2.5 percent expected). Personal spending has slowed as well (0.3 percent monthly growth in March, down from 0.9 percent the prior month and below the 0.5 percent expected). Job gains have also weakened and are not keeping pace with the natural growth in the working-age population.

This news suggests that more private consumption spending, encouraged by continued stimulative, deficit-financed government spending and tax cuts, is needed to further expand...

Tuesday, March 13, 2012 - 9:40 AM

As political candidates offer vague promises of spending restraint and Congress considers the administration’s new budget, Americans face an unpleasant fiscal landmark: before we get to the election in November, the national debt will exceed the U.S. economy’s entire annual production.

The debt has not exceeded the Gross Domestic Product (GDP) since World War II. Once that war was over, however, the debt stabilized and then steadily fell as a percentage of the economy.

Unfortunately, nothing like that is on the horizon today. On the contrary, government projections show the federal debt – which recently topped $15.5 trillion -- continuing to increase rapidly in the years ahead as we continue to borrow and as today’s unusually low interest rates eventually rise toward their historic average.

The Concord Coalition’s projections, based on reasonable assumptions about future decisions by elected officials, show federal debt snowballing even more rapidly than government projections do. And if the economy falters, the debt would grow even faster.

Even sweeping fiscal reform plans, such as those recommended a year ago by President Obama’s bipartisan fiscal commission, envision the federal debt continuing to rise for decades.

A few facts about the federal debt to keep in mind:

+ It consists...

Tuesday, November 1, 2011 - 12:00 AM

Members of the Joint Select Committee on Deficit Reduction (“super committee”) have a timing problem that compounds their political problem. Put simply, they may run out of time to reach agreement on the kind of comprehensive changes that are needed to put the nation’s finances on a sustainable path. However, with a little cooperation and a strong dose of leadership, they need not let the clock run out on their efforts.

The super committee’s political problem is easy to see. Its official goal is to cut the deficit by $1.5 trillion over 10 years. This won’t be easy, but as the Government Accountability Office (GAO) recently pointed out, even if lawmakers are able to achieve this goal it would still leave the debt on an unsustainable growth track. That is why the President, the chairman of the Federal Reserve Board, many members of Congress and countless outside commentators have urged the super committee to aim for a more ambitious target – anywhere from $3 trillion to $5 trillion.

However, to reach this goal, often described as “going big,” the super committee will have to tackle the two thorniest fiscal policy issues – entitlement and tax reform. These issues have stymied every other long-term budget negotiation this year because they are where the parties have their biggest differences.

And yet, we...

Thursday, September 8, 2011 - 12:00 AM

It is not inconsistent to provide effective short-term support for the economic recovery while laying the groundwork for long-term deficit reduction. To do so, however, Washington will have to move beyond the inflexibility and partisan vitriol of the recent debt limit debate.

President Obama took some helpful steps in this direction in his speech to Congress this evening. He offered several short-term proposals that could conceivably provide both an economic boost and a basis for bipartisan cooperation – which are together essential ingredients for effective fiscal policy and for repairing some of the damage that the debt limit debate inflicted on public confidence.
 
A full evaluation of the President’s plan, however, will need to take into account the ideas he will release later for paying for his new proposals and moving the federal budget toward a sustainable path. A credible plan to stabilize the debt over the long term will be essential to making short-term measures more effective. It is not just a matter of making the numbers work; it is sound economics.

As The Concord Coalition has long argued, “fiscally responsible deficit spending” need not be an oxymoron. During periods of economic difficulty when deficit spending may be required, the key is to ensure that the country gets the...
Monday, August 8, 2011 - 4:55 PM

Members of the new Congressional Joint Committee on Deficit Reduction will have a threshold decision to make: Do they want to take their mandate seriously?

If the answer is yes, they will likely have to make decisions in the public interest that will not sit well with the party leaders who appointed them. If the answer is no, they will heighten public frustration with the political process and risk deep automatic cuts in programs many of them care about.

Which should it be?

The answer is obvious. In hard times, the national interest always tops narrow or partisan concerns. And yet, pressure on members of the committee to fiercely protect the interests of favored constituencies will be enormous. It has already begun in the form of intense lobbying of party leaders to only appoint “safe” members who are firmly opposed to compromise. 

Arrayed against this pressure is the stark reality that we can’t fund future spending commitments with today’s level of taxation. Unless someone steps up to the challenge of reconciling the competing values and needs of a diverse society, our nation will suffer the consequences -- not just within some artificial 10-year “budget window,” but for decades to come. 

Failure to confront this challenge got us into the fiscal ditch we’re in. The Joint Committee has...

Monday, August 1, 2011 - 6:02 PM

In this debt-limit game of musical chairs, the music has stopped and it’s time to grab a seat. The only one available is the deal worked out by congressional leaders and the Obama administration over the weekend. It is not a solution to our nation’s fiscal problems and is far from the “grand bargain” needed to put us on a sustainable path. However, a debt-limit deal needs to get done. This one at least avoids a self-inflicted wound caused by the government’s defaulting on its obligations, and it gives proponents of a grand bargain another turn at bat.

The main flaw in the agreement is that it reflects the continued refusal of our political leaders to confront fiscal reality. Once again, they are leading with discretionary spending cuts while leaving the biggest problems -- entitlement and tax reform -- for another day.

If this is what they have to do to pass a debt limit increase, so be it. But no one should pretend that they have solved anything other than an artificial political crisis. The fundamental fiscal crisis is pretty much unchanged.

A positive element is the proposed special congressional committee charged with finding deficit reductions beyond the initial trillion-dollar down payment. The committee is the only aspect of the agreement that...

Thursday, July 14, 2011 - 10:57 AM

The partisan vortex in Washington is now so strong that it threatens to swallow all rational thought.

As the nation rushes closer to default, politicians are rushing to their respective partisan corners. At times they truly seem more interested in blaming each other for causing a crisis than they are with preventing a crisis from happening. It is little wonder that credit ratings agencies such as Moody’s and Standard & Poor’s have repeatedly questioned whether U.S. Treasury bonds can maintain their AAA status.  The scenario they fear, which becomes more likely by the day, is not so much that the U.S. can’t pay its bills but that it will refuse to do so.

For a brief time last week, President Obama and House Speaker John Boehner appeared ready to challenge their respective political bases. Hopes were raised for a “big deal” that would include essential compromises on popular entitlement programs and tax breaks to reduce the deficit by roughly $4 trillion over 10 years. It was a good idea, but it didn’t last long.

Instead of looking at what the nation might gain in fiscal sustainability, politicians on both sides looked with horror at what they might lose in terms of partisan finger-pointing. A big deal would mean that Republicans could no longer accuse Democrats of trying to kill the economy with...

Monday, July 11, 2011 - 10:39 AM

The biggest sticking point in the debt-limit talks has been the disagreement over tax policy. President Obama has been encouraged by his fiscal commission to insist that higher revenues be part of any major deficit-reduction deal -- and to recommend that much of the revenue increase should come from broadening the tax base by reducing "tax expenditures." Although Republicans are coming around to the idea that tax expenditures are just subsidies run through the tax code, many of their leaders stand firm on the position that revenues as a share of the economy not rise from current policy.

While President Obama and other Democrats want revenue increases, they don’t want any changes that would raise taxes on middle class or lower-income households, arguing that such taxes would be overly burdensome and would harm the economic recovery. Meanwhile, Republicans only want reduced tax expenditures to pay for cuts in marginal tax rates, asserting that they would be the path to stronger economic growth and in turn higher revenues.

So both sides are reluctant to change their tax-cutting ways, and they continue to have their own great expectations for tax cuts. But tax cuts don’t always live up to such expectations,...