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De Omnibus Dubitandum - Lux Veritas

Tuesday, April 1, 2014

The Inevitability of a U.S. Government Default

DAVID R. HENDERSON AND JEFFREYROGERS HUMMEL

There is a ticking time bomb in the U.S. government’s fiscal structure: growing government spending, which, if unchanged by policy, will result in growing government debt. This is not the short-run problem that we hear so much about in the news when Congress gets to vote on increasing the ceiling for the U.S. federal debt. It is the long run problem…….Social Security, Medicare, and Medicaid—are highly likely to take an increasing share of gross domestic product (GDP). Overall federal government spending, including interest on the debt, could exceed 40 percent of GDP by 2050. For more than sixty years, overall federal revenues as a percentage of GDP have almost always been within a narrow range. They have never gone over 21 percent of GDP and have almost never gone below 17 percent.

Even during the crisis years of World War II, they never exceeded 22 percent of GDP (White House 2013). The result, if the government does not change policy, will be annual deficits of approximately 20 percent of GDP. This is unsustainable……..

First, federal government revenues are unlikely to be more than 22 percent of GDP for more than a few years.

Second, well before spending reaches 30 percent of GDP, the federal government

will face a renewed, more serious fiscal crisis.

Third, likely cuts in the growth of Medicare and Medicaid spending would at best delay, but not prevent, this crisis……To Read More….

Editor's Note - This is a 15 page white paper worth reading. 

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