Obama: Debt No ‘Immediate Crisis’ — CBO: ‘Serious Consequences’

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An adult daycare center in Novato, California.

“We don’t have an immediate crisis in terms of debt,” President Barack Obama said, during a discussion of the federal deficit and budget talks with Congress in an interview aired today by ABC News’ “Good Morning America.”’ “In fact,” the president said, “for the next 10 years, it’s gonna be in a sustainable place.”

The folks at The Public Notice, a nonprofit dedicated to reporting on the economy and government policy, have paired up the president’s comments with some other reports.

Such as the Congressional Budget Office’s annual budget and economic outlook:

“If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO’s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015. Deficits are projected to increase later in the coming decade…

“However, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. As a result, federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade. ”

“By 2023, if current laws remain in place, debt will equal 77 percent of GDP and be on an upward path, CBO projects such high and rising debt would have serious negative consequences: When interest rates rose to more normal levels, federal spending on interest payments would increase substantially.”

“Moreover, because federal borrowing reduces national saving, the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they might ordinarily to use tax and spending policies to respond to unexpected challenges. Finally, such a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”

 

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