The Obama administration continues to propose more deficit spending to stimulate the economy, but the latest plan shows the red ink rising faster than the U.S. gross domestic product (GDP).
Federal debt under Obama's White House is 41 percent of GDP — worth nearly half the overall value of the economic production of the U.S.
Shockingly, according to an opinion piece by John Taylor, a professor of economics at Stanford University and a noted financial author, the debt will rise to 81 percent of GDP in 10 years.
"With no change in policy, it could hit 100 percent of GDP in just another five years. The risk posed by this debt is systemic; and could do more damage to the economy than the recent financial crisis," he writes in an opinion piece in The Financial Times.
This is a source of considerable concern for credit rating agencies, which global bond houses use to monitor the risk of their investments.
"A government debt burden of that 100 percent level, if sustained, would, in Standard & Poor's view, be incompatible with a triple-A rating," the venerable credit rating agency said last week.
A permanent, across-the-board, 60 percent tax increase will be required by 2019 to pay off the debt that Obama is running up today, Taylor writes. "Clearly, this will not and should not happen," he adds.
A new regulatory body should be created which monitors the "systemic risk" being created by reckless government spending, just as the Securities and Exchange Commission, and other regulatory bodies, are monitoring the systemic risk at banks across the U.S., writes Taylor.
"The government is now the most serious source of systemic risk," Taylor adds.
Something needs to be done on the systemic risk front, immediately, others agree.
According to a report in yesterday's Daily Deal, the Committee on Capital Markets Regulation issued a report Tuesday calling for a complete overhaul of the financial regulatory system by merging agencies such as the SEC and the Commodity Futures Trading Commission, enhancing the Federal Reserve's powers and prescribing rules for derivatives.
The report by the group contains 57 recommendations for the creation of a new financial regulatory structure.
Among the timely recommendations is the creation of two or three independent financial regulators to oversee the entire system: the Federal Reserve, possibly a new investor/consumer protection agency. and a Financial Services Authority which would be comprised of the CFTC, the SEC, the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
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