Tuesday, June 5, 2012

CBO and The Debt, Stop It Now

 The CBO has just issued its report on the debt. It is chilling. They project a doubling of the debt, as a percent of GDP, exceeding 200%. Is anyone listening?

They state that the impact of this doubling of the debt will be:

Rising levels of debt would have other negative consequences beyond those estimated effects on output:
  • Greater debt would result in higher interest payments on that debt, which would eventually require higher taxes, a reduction in government benefits and services, or some combination of the two.
  • Rising debt would increasingly restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, the effects of such developments on the economy and people’s well-being could be worse.
  • Growing debt also would increase the probability of a sudden fiscal crisis, during which  investors would lose confidence in the government’s ability to manage its budget and the government  would thereby lose its ability to borrow at affordable rates. Such a crisis would confront  policymakers with extremely difficult choices. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that  would have been necessary had the adjustments come sooner.
They argue that the guaranteed benefits such as health care will be a major driver. They state:

According to CBO’s projections, if current laws remained in place, spending on the major federal health care programs alone would grow from more than 5 percent of GDP today to almost 10 percent in 2037 and would continue to increase thereafter.

Spending on  Social Security is projected to rise much less sharply, from 5 percent of GDP today to more than 6 percent in 2030  and subsequent decades. Altogether, the aging of the population and the rising cost of health  care would cause  spending on the major health care programs and Social Security to grow from more  than 10 percent of GDP today to almost 16 percent of GDP 25 years from now. That combined increase of more than 5 percentage points for such spending as a share of the economy is  equivalent to about $850 billion today.

By comparison, spending on all of the federal government’s  programs and activities,  excluding net outlays for interest, has averaged about 18.5 percent of GDP over the past 40 years. 

If law-makers continued certain policies that have been in place for a number of years or modified  some provisions of current law that might be difficult to sustain for a long period, the increase in spending on health care programs and Social Security would be even larger. Absent substantial increases in federal revenues, such growth in outlays would result in greater debt burdens than the United States has ever experienced.

Clearly many things must be done. Healthcare is an over riding burden. Two things must be done promptly. First increase the Medicare fees, by at least a full percent per payer, and increase Medicare age from 65 to 70 over the next decade. Second, focus on preventable disease such as Type 2 Diabetes by making the fatty pay! Since obesity is the cause of over 95% of Type 2 Diabetes and its sequellae then we must charge for those costs up front.

Otherwise the "giving away" "free"health care will result in a total economic collapse.