The Shutdown Is a Sideshow. Debt Is the Threat

Sounds like the perfect time to expand the entitlement nation – Niall Ferguson: The Shutdown Is a Sideshow. Debt Is the Threat – WSJ.com.

Niall, using CBO number documents the debt problem and asks what can be done.

The question is what on earth can be done to prevent the debt explosion. The CBO has a clear answer: “[B]ringing debt back down to 39 percent of GDP in 2038—as it was at the end of 2008—would require a combination of increases in revenues and cuts in noninterest spending (relative to current law) totaling 2 percent of GDP for the next 25 years. . . .

“If those changes came entirely from revenues, they would represent an increase of 11 percent relative to the amount of revenues projected for the 2014-2038 period; if the changes came entirely from spending, they would represent a cut of 10½ percent in noninterest spending from the amount projected for that period.”

Anyone watching this week’s political shenanigans in Washington will grasp at once the tiny probability of tax hikes or spending cuts on this scale.

It should now be clear that what we are watching in Washington is not a comedy but a game of Russian roulette with the federal government’s creditworthiness. So long as the Federal Reserve continues with the policies of near-zero interest rates and quantitative easing, the gun will likely continue to fire blanks. After all, Fed purchases of Treasurys, if continued at their current level until the end of the year, will account for three quarters of new government borrowing.

But the the mere prospect of a taper, beginning in late May, was already enough to raise long-term interest rates by more than 100 basis points. Fact (according to data in the latest “Economic Report of the President”): More than half the federal debt in public hands is held by foreigners. Fact: Just under a third of the debt has a maturity of less than a year.

Hey, does anyone else smell something burning?

Not many smell any smoke. Our nation has been kicking the can down the road so long that we can’t see that it’s getting treacherous and will ends at a cliff. No doubt, we will follow the can over the cliff.