Wednesday, January 26, 2011
From an article here in Norwegian - translation of info from the article is just below. As a Canadian (73.3% of Canada's trade is with the US, China is still just 2.1%) one naturally hopes predictions like these will turn out to be wrong. Of course, right or wrong when it comes to these predictions is more a matter of political will than anything else, so in a sense this is more a warning than a prediction, and most economists would certainly love to be proven wrong about such things. Last year's New York Times deficit calculator shows how easy it is to actually reduce and completely get rid of the deficit as an interested observer:
but the problem is that one can't simply check off boxes like that in a real political environment. Cut aid to states by 5 percent, increase the Medicare eligibility age to 70, and Raise the Social Security Retirement age to 70 for example just won't happen due to opposition from pretty much everybody (those directly affected and most people that know them), while some others such as Return the estate tax to Clinton-era levels, allow Bush tax cut expiration on income above $250,000 a year and Millionaire's tax on incomes above $1 million are easily doable in terms of public support, but not when one factors in GOP opposition - not just the House right now but overcoming a Senate fillibuster even when Democrats had a majority in both houses.
Info from the article:
USA to be bankrupt by 2020
The US is in larger financial difficulty than crisis-hit Greece, believes researcher Jørgen Ørstrøm Møller.
The US is moving full speed towards a huge debt that will become impossible to repay.
The Danish researcher Jørgen Ørstrøm Møller believes that the USA will be bankrupt within the next ten years, saying that the US will have to cut its economic policies by two to three percent of the country's GDP by 2015 just to stabilize its debt. This is considerably more than the 17 euro countries, which should "only" have to cut by 0.9% of their GDP. Even crisis-hit Greece needs to cut by 1.3% of its GDP in order to stabilize its debt by 2015.
So far, however, the US has done just the opposite, continuing to lower taxes and raise government spending.
US interest payments alone will rise from 8-10% of the national budget today to 20% in 2020. It is impossible to see where all this money will come from, said Ørstrøm Møller at a top-level seminar according to business.dk.
States in Crisis
He points out that the situation in many states in the US are worse than in euro countries. 48 of 50 states cannot finance their expenses today. In President Barack Obama's home state Illinois, where Chicago is the largest city, the state can only finance 55% of its spending.
"California could receive the same junk status as Greece, and 50 to 100 American cities could go bankrupt. But the number of private companies and banks that are also threatened by huge debt and could go bankrupt is also huge," he said.