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Trillion-Dollar Deficits for a Decade   February 20th, 2009
Study indicates that trillion-dollar deficits may persist for a decade       


More observations...

The numbers are now mind-boggling. We knew that we can expect trillion-dollar deficits for years to come. And we knew that Obama's $787 billion pending package would add to that. But now the Brookings Institution believes trillion-dollar deficits could last a decade.


In fact, largely because of the recession and the federal rescue efforts, the deficit will average at least $1 trillion per year for the next 10 years, even if stimulus is limited to two years and the jobs picture improves dramatically, according to estimates by economists Alan Auerbach of the University of California in Berkeley and William Gale of the Brookings Institution.

A couple of days ago I wrote that the American public is potentially on the hook for a total national debt of $20 trillion in a worst-case scenario given all the guarantees and bailouts... not including the "normal" deficit. Now the Brookings Institution is saying that the average deficit will be a trillion per year for the next decade.

That means that in the (hopefully) worst-case scenario, by 2019 the national debt might be $30 trillion. That's about the same time Social Security will start drawing money from the U.S. General Fund as it starts to cash in its "investments." So right about the time that the U.S. Government has to start using income taxes to pay Social Security benefits, we also will potentially have a $30 trillion debt. At a 3% interest rate, that comes to almost a trillion dollars in interest per year.

It seems that, given the current course of action to address the current crisis, even if we're "lucky" and everything works out the way the administration wants, we can look forward to either staggering inflation or extremely high taxes. There's no other way for the current strategy to deal with a $30 trillion debt in what may then be a $17 trillion-per-year economy (assuming 3% growth for the next decade).

Every day it seems more clear that the alternatives being proposed guarantee failure--the only difference seems to be how the failure plays out. We need to try the one option that hasn't been used in half a century and, while it will be painful today, it will ultimately work: Fiscal conservatism.

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