Will It Take a Crisis to Fix Fiscal Policy?

an article by Rudolph G Penner published in Business Economics (Volume 46 Number 2 (April 2011))

Abstract

The U.S. national debt is on a trajectory to reach 185 percent of gross domestic product by 2035 unless there is a drastic change in federal fiscal policy. The main drivers of this situation are Social Security and health care programs, whose growth is amplified by an ageing population and increasing medical costs, a dysfunctional Congress and an unwillingness to tackle the increasing burden of Social Security and the medical programs. The National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center's Debt Reduction Task Force have produced thoughtful and sound plans for debt reduction but have produced little political traction. Reluctance to come to grips to the U.S. federal debt problem has increased the risks of a sovereign debt crisis, and the paper spells out potential responses, should one occur. Given the obstacles to a major overhaul of fiscal policy, it is difficult to see how it will be avoided.

Hazel’s comment:
I don’t pretend to understand fiscal policy nor the whole business of sovereign debt. I do know, however, that if my personal indebtedness was 185% of my earnings then I would be in trouble, big trouble. And presumably my indebtedness would be rising because I am, by now, unable to meet even the most basic of interest payments on what I owe.

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