The tax cuts of the last decade, combined with this year’s tremendous federal spending binge, are creating a “fearsome” fiscal crisis, the worst budget deficit that that U.S. has faced in 75 years, says former Clinton administration Deputy Treasury Secretary Roger Altman.
Writing in The Financial Times, Altman, who was also an economic advisor to the presidential campaigns of Hillary Clinton and John Kerry and is an investment banker with Evercore Partners, said the government’s fiscal crisis has been exacerbated by recession.
“America's fiscal dilemma is unprecedented,” writes Altman.
“All the data are signaling weakness. Consumer spending, which represents 70 percent of gross domestic product, and employment are especially downbeat. Joblessness, having hit a 26-year high, will not improve much through 2010. The pace of recovery, therefore, will be painfully slow.”
Through 2019, private forecasts predict deficits averaging approximately $1 trillion a year. Then, the federal deficit will represent 6.5 percent of GDP.
The national debt will also hit “nearly 85 percent of GDP,” writes Altman. “Annual interest costs on it would exceed the U.S. defense budget and the whole category of discretionary spending.”
To prevent this from happening, there should be a “stimulative” policy by the federal government now, Altman writes.
The Federal Reserve should maintain a zero interest rate and the $787 billion stimulus from last February should be “expanded,” he said.
The economic climate of today is starting to resemble the late 1970s, he added.
“President Obama and Congress should not risk a replay of the Carter experience,” said Altman.
Other G-20 nations are facing government budget problems too. A report in The New York Times indicates that Britain's budget deficit is expected to reach £175 billion next year.
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