Overlooked in yesterday's CBO report: The outlook on the national debt is bleak

It may not be good politics to talk about, but the CBO is painting a grim picture in which debt is already high and getting higher, and the economy, though recovering, will still be hobbling along for as far as forecasters can see. Instead of a Baby Boom to fuel economic growth, retiring Baby Boomers will be putting a financial burden on younger generations and the labor force will shrink with the aging of the population.

“With debt so large, federal spending on interest payments will increase substantially as interest rates rise to more typical levels,” read the CBO report. “Moreover, because federal borrowing generally reduces national saving, the capital stock and wages will be smaller than if debt was lower. In addition, lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unanticipated challenges. Finally, such a large debt poses a greater risk of precipitating a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”

Though the projections in this particular report end in 2024, citing its past estimates, the CBO warned that, “Beyond the coming decade, the fiscal outlook is even more worrisome.”…

This leaves the nation with very little wiggle room to boost spending in the event of an emergency, such as the U.S. did during World War II. To the extent that U.S lawmakers would be able to respond to a national crisis, it would have to pay much higher borrowing rates – compounding the federal debt problem.

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