Wealth & Poverty Review Scott Powell: Debt now funds gov’s core duties
My colleague Scott Powell has a letter to the editor in today’s Wall Street Journal. He points out that the defense budget, plus general government operations–including police, prisons and courts, transportation, agriculture and basic research–are already being funded by debt-financed deficit spending.”
This and other scary stats suggest a credit crisis is closer that one might think:
The fact is the U.S. is close to the “bang” point of crisis right now. Government pensions, Social Security, Medicare and Medicaid, and the welfare and education budgets are projected to absorb more than the $2.5 trillion tax-revenue base this fiscal year. Thus, the defense budget, plus general government operations–including police, prisons and courts, transportation, agriculture and basic research–are already being funded by debt-financed deficit spending.
As for the debt-to-GDP ratio, Moody’s and S&P have pointed out that when state and city municipal bond debt and the debt of Fannie Mae and Freddie Mac (now wards of the state) are added to the national balance sheet, public debt today in the United States exceeds 100% of our GDP.
In addition, at the present level of indebtedness, each 1% increase in interest rates adds $116 billion to the budget in terms of nondiscretionary debt-servicing costs. The U.S. has benefitted from the fact that fiscal problems elsewhere are more obvious, but the S&P downgrade last summer was a warning of the close proximity of the bang point, when the credit-worthiness of the U.S. will collapse.