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CBO Warns of the Risk of a U.S. Fiscal Crisis
Posted By Nicola Moore On July 29, 2010 @ 6:00 pm In Economics | Comments Disabled
It’s difficult to forget the drama—including riots, fires, and even deaths—that unfolded during Greece’s recent fiscal crisis. But what would happen if bad budget policy led to a financial crisis in the United States?
A recent report  from the Congressional Budget Office (CBO) points out the economic casualties of a fiscal crisis in the US would be devastating.
Unfortunately, unless America reforms its fiscal policies, it will be a question of when rather than if a crisis will ensue. As CBO notes, a government already heavily in debt and with a bleak long-term budget outlook  has an increased probability of experiencing a financial crisis.
Sound familiar? In the U.S., debt currently stands at a peacetime record high of 62 percent of the gross domestic product (GDP). By 2020 debt will reach nearly 90 percent of GDP, and the International Monetary Fund has recently pointed out that the U.S. long-term debt situation is one of the world’s worst .
The easiest way to stop the debt from growing out of control is to stop adding to it by cutting spending, particularly on entitlements . CBO calculates that stabilizing the debt-to-GDP ratio for 25 years would require an immediate spending cut equal to 5 percent of GDP. If we wait for a fiscal crisis, the level of austerity required would be even more severe—not to mention economically devastating.
This report should serve as a wake-up call about how risky a financial crisis would be for the U.S. economy.
Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2010/07/29/cbo-warns-of-the-risk-of-a-u-s-fiscal-crisis/
URLs in this post:
 Image: http://www.heritage.org/budgetchartbook/national-debt-skyrocket
 report: http://www.cbo.gov/doc.cfm?index=11659
 bleak long-term budget outlook: http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf
 one of the world’s worst: http://www.heritage.org/Research/Reports/2010/07/US-Long-Term-Debt-Situation-Is-One-of-the-Worlds-Worst
 particularly on entitlements: http://www.heritage.org/Research/Reports/2009/11/To-Control-National-Debt-Congress-Needs-to-Tackle-Entitlements
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