IMF to US: Better start taking care of business

You remember the IMF, right?  It’s the organization that had to partner with the EU in order to rescue Greece from its massive debt and collapsing bond structure — a task accomplished with around $7 billion from the US.  Now the IMF has a warning for the US as well, that our own debt is Greecing the skids to a similar but much more disastrous conclusion in the long term:

Advertisement

U.S. officials must act quickly to control government deficits or face slower growth and even more difficult choices in the future, the International Monetary Fund said Thursday in a report criticizing the tepid U.S. response to its rising public debt.

The IMF warning comes as federal officials grapple with a congressional projection this week that the annual deficit will reach a historic $1.5 trillion this year. This was the latest report to raise concerns about how massive government debts in developed countries could undermine the global economic recovery.

“The U.S. has a lot of credibility. This does not imply their credibility can last forever,” IMF fiscal affairs director Carlo Cottarelli said as he released the IMF study. It concluded that the United States is falling behind on a promise it made to other top economic countries to halve its budget deficit by 2013.

“This is a problem many years in the making and will take a concerted effort by Democrats and Republicans working together to find a solution,” White House press secretary Robert Gibbs said in answer to a question about the IMF report.

He noted that President Obama called for a freeze on discretionary spending during this week’s State of the Union address. IMF officials have welcomed the step but said that spending cuts in pension and health entitlement programs are also needed.

Offering the discretionary-spending freeze as an answer to the IMF’s legitimate concern is akin to telling your mortgage holder that you’ve started an austerity program by deciding not to buy more pay-per-view porn each month than in the previous few years.  Your lender would probably blink twice while deciding if you were serious, then congratulate you while wondering if someone has to come in each day to cut your food for you.

Advertisement

A freeze in discretionary spending isn’t a reduction; it’s an insistence on spending at the same level that got the country into the position that’s alarming the IMF.  As I wrote earlier this week, the White House is claiming that a freeze on non-security discretionary spending (which amounts to about 12% of the overall federal budget, by the way) will save $400 billion over the next ten years, but that’s simply not true.  It will save $400 billion over the next ten years at the rate the Obama administration wanted to increase spending.  It actually saves nothing at all, and in the absence of other changes, won’t affect the current deficit trajectory one single iota.

Besides, we have a $1.5 trillion deficit in this fiscal year, with deficits over the next decade projected to average over a trillion dollars.  That change would amount on an average annual basis to 4% of the deficits, leaving 96% of the deficits in place.  And since deficits accumulate debt, it gets worse from the IMF’s perspective each year that continues.

For the IMF, this is even more worrisome than the Greek default.  After all, the IMF could rely on the US to help backstop the bailout for Greece and perhaps other EU members on the ragged edge of default.  If the US starts to slide, there won’t be anyone to bail out America — and the IMF will be utterly destroyed in the collapse.  The IMF’s managers want the US to start taking the problem seriously, and they’re not seeing any indication of seriousness from the administration, especially not after the so-called spending freeze offered by Barack Obama this week conditioned on getting a slew of new government spending approved.

Advertisement

Note: I’m participating in a conference this weekend with Americans for Prosperity in San Diego, helping to boost online activism.  Yesterday was mostly a travel day for me, and today and tomorrow my blogging will be limited as well.  I hope you enjoy our guest bloggers in the meantime.

Join the conversation as a VIP Member

Trending on HotAir Videos

Advertisement
Advertisement
Advertisement
Advertisement