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Wednesday, June 22, 2011

CBO's Long Term Debt Projections Spell Major Economic Disaster

H/T YID With LID for pointing out (and providing the embedded report below his post) the latest Congressional Budget Office's long term debt report which projects unmanageable economic disaster on the horizon for the U.S. unless some painful changes are made now.

CBO’s projections in most of the report understate the severity of the long-term budget problem because they do not incorporate the negative effects that accumulating additional federal debt would have on the economy, nor do they include the impact of higher tax rates on people’s incentives to work and save. In particular, large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States. (Chapter 2 of the report presents estimates of the economic effects of growing debt and the impact of those economic changes on the trajectory of debt under both scenarios.)

There is much more, go read it there and the report itself is embedded for those that wish to look through the whole thing.