July 12, 2010

Simple Solutions for the Long-Term Budget Challenge

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The United States long-term fiscal outlook is considered by many experts to be unsustainable. If no policy changes are made, the projections beyond 2030 are not really plausible, because by then the financial position of the U.S. government will have become unstable. With government debt in excess of 100 percent of GDP and more than six times government revenues, the risk premium that investors charge the Treasury could become significant. If we attempt to follow current policy, and a crisis ensues, then by the time today’s 40- and 50-year-olds reach age 65, the only will option will be to spend less on medical services in their old age, with the spending restrictions imposed by draconian government rationing.