海角大神

Nice by the Congressional Budget Office. It explains that besides the 鈥済radual consequences鈥� of the gradual worsening of the fiscal outlook, there are these shorter-term risks to the economy:

"Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government鈥檚 ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors鈥� confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries鈥� experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government鈥檚 long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.

If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors鈥� fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. To restore investors鈥� 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."

In other words (or in 鈥淓conomistMom words鈥�), the more we put off coming up with a sensible weight-loss program which combines a reasonable diet (spending restraint) with a decent amount of exercise (revenue increases), the more likely we鈥檒l end up binging and purging鈥搘hich is never a sustainable strategy.

And speaking of that optimal weight-loss program, the for letting the upper-income Bush tax cuts immediately expire as scheduled, but permanently extending the 鈥渕iddle-class鈥� portions proposed by President Obama. My reaction is that鈥檚 still not enough exercise as well as not the most effective exercise. More on what I mean by that later this week.

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