Quoting Congressional Budget Office (CBO) “scores” in an effort to garner support for a program without stating all the assumptions and discussing all the uncertainties, is a bit like lying with statistics. Without the full picture, it is all meaningless. Further, quoting a single program’s score without accounting for all the transient effects as a bill is negotiated through the labyrinth of congressional deals or for the effect on the total federal budget reminds one of John Wayne, “If everything isn’t black and white, I say, ‘Why the hell not?’”
There is one score that would satisfy Duke: the sovereign risk rating published by major credit reporting agencies—Moody’s, Fitch, and Standard & Poor’s (S&P). Of the 124 countries S&P ranks, only 17 have a triple A rating. Moody’s recently identified four triple A countries under pressure and warned that France and Germany are “resistant” while the U.S. and U.K. are only “resilient” to downgrade—financial idioms that mean we are closer to losing the vaunted mark.
Fitch recently downgraded Portugal’s debt; Greece’s problems are well-known and have put pressure on all of Europe and the Euro; and lest we think this can’t happen to a major industrial country, Japan was already downgraded to double A. Rating agencies are concerned about the heavy debt countries bear, which raises the cost of interest on new debt needed to finance growing deficits—a vortex that can be escaped only by making hard choices with suppurating results: bankruptcy, drastic cuts in spending, or raising revenue.
The markets are starting to show concern over U.S. debt, as the price of Treasuries fell last week, raising interest rates. Coincidentally, last week the CBO released an analysis of the entire 2011 budget proposal (excluding healthcare) and concludes, “If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. Those deficits would amount to 10.3% and 8.9% of gross domestic product (GDP), respectively.” By comparison, Portugal’s deficit is 9.3% of their economy. And Greece must reduce its deficit from 8.7% of GDP in 2010 to less than 3% by 2010—the threshold the European Union considers “excessive”. That is a level the U.S. is not expected to reach ever, according to the CBO analysis.
Recall that the Democrats touted a reduction in the deficit of $130 billion over ten years with their healthcare reform bill—an average of $13 billion per year. Compare this to the record deficits of the entire budget: a stack of one-dollar bills representing the shortfall of $1.5 trillion would make it to the moon and back, twice. The “savings” of $13 billion would make a round trip only from Miami to Anchorage.
The CBO study concludes, “Under the President’s budget, debt held by the public would grow from $7.5 trillion (53% of GDP) at the end of 2009 to $20.3 trillion (90% of GDP) at the end of 2020, about $5 trillion more than under the assumptions in the baseline. Net interest would more than quadruple between 2010 and 2020 in nominal dollars (without an adjustment for inflation); it would swell from 1.4% of GDP in 2010 to 4.1% in 2020. [emphasis added]” The debt-to-GDP ratios will be at levels the country hasn’t seen since World War II. Again by comparison, Portugal’s public debt is 85% of GDP and that of Greece about 112%.
Some believe the biggest threat to our future is not the deficit nor the debt but the unfunded liabilities of social insurance—Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs—the present value of which the General Accountability Office (GAO) estimates in Financial Statements of the United States Government for the Years Ended September 30, 2009 and 2008 at $46 trillion. This is on the same order of magnitude as the total net worth of all U.S. households, $54 trillion.
And while the administration wants us to believe we can spend our way out of these problems, the CBO report determined from three econometric models that Obama’s proposal would reduce GNP between 2011 and 2015 and “would result in a smaller stock of domestically owned capital.”
It’s all there in black and white.