Brookings Institution senior fellow Mort Zuckerman says the U.S. must embrace austerity.
"A new era of American austerity is the only way to put things right," Zuckerman writes in the Financial Times. "Who could dispute, when our government must borrow $4.5 billion a day just to keep going, that our national debt is now an existential threat?"
"No wonder this is being called the most predictable crisis in U.S. history."
Zuckerman points out that knowledgeable people in finance are aware that the U.S. Federal Reserve has been buying 70 percent of all new Treasury paper, making the government by far the largest client of its own debt.
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"This is possible only by increasing the money supply and the balance sheet of the Fed itself, a practice that sooner or later must blow up," he says.
Economists Carmen Reinhart and Kenneth Rogoff have shown that economic growth deteriorates as total government debt exceeds 90 percent of gross domestic product, Zuckerman notes.
"America is already in that range," he says. "Indeed, the real facts are even worse, for we are also now in the midst of the familiar Washington game of kidding ourselves about the size of the deficit. It is already at $1,645 billion for the next fiscal year."
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"The Congressional Budget Office concludes that President Obama’s most recent budget underestimates spending while also overestimates revenues."
The Wall Street Journal reports that Standard & Poor’s has taken the unprecedented step of putting U.S. short- and long-term debt on CreditWatch negative and saying there’s now a one-in-two chance they will downgrade the U.S.’s debt within three months.
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