Tags: Bowles | US | Economic | Crisis

Bowles: US Faces ‘Most Predictable Economic Crisis’ Ever

Wednesday, 02 May 2012 12:01 PM

The United States is facing a massive economic crisis that is both predictable and avoidable, says Erskine Bowles, co-chairman of President Barack Obama’s deficit-reduction commission.

According to Bowles, 100 percent of the tax revenue coming into the Treasury in 2011 went right out the door to pay for mandatory spending — such as Medicare, Medicaid and Social Security — and to pay the interest on the country's massive $15.6 trillion national debt, Bowles says, according to Bloomberg View.

Money spent on everything else, including the military, homeland security, education, infrastructure, research and elsewhere was borrowed, largely financed by foreign countries.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Interest on that debt comes to around $250 billion a year, mainly because investors like the U.S. due to the European debt crisis and low Federal Reserve borrowing costs.

Once rates rise, the U.S. could feel the pain.

"We’ll be spending over $1 trillion on interest alone before you know it,” Bowles tells the Council on Foreign Relations, Bloomberg View adds.

"I think today we face the most predictable economic crisis in history," said Bowles, a former White House Chief of Staff under President Bill Clinton.

"Fortunately, I think it’s also the most avoidable. I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable."

To make matters worse, the U.S. is driving full speed ahead towards the edge of a so-called fiscal cliff, a term markets use to describe a year-end event when the Bush tax cuts expire while automatic spending cuts kick in, a combination that will suck hundreds of billions of dollars out of the economy.

Add in other expiring tax cuts and let the problem drag on, the economy will suffer.

"It’s probably $7 trillion worth of economic events that are going to occur in December. And there’s been little to no planning for that," Bowles says.

Bowles, a Democrat from North Carolina, and former Wyoming Republican Senator Alan Simpson delivered a 2010 proposal to narrow deficits that called for a blend of tax hikes and spending cuts that would gradually ease the country's debt burdens by $4 trillion over a decade.

President Barack Obama rejected the plan, which former Federal Reserve Chairman Alan Greenspan says was a costly mistake.

"The worst mistake the president made was not embracing that vehicle right away," Greenspan said at the Bloomberg Washington Summit, The Wall Street Journal reports.

Greenspan added he liked the Simpson-Bowles plan because it allowed for political compromise and laid the framework for progress even if it wouldn't fully resolve the country's deep-rooted fiscal woes.

"It's the ideal vehicle, which won't get us fully out of this," Greenspan says.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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