The Congressional Budget Office has been busy on its blog lately, posting both snapshots of federal programs and also publishing responses to questions they have received from Members of Congress at hearings. Their latest post from director Doug Elmendorf is the latter variety, showing the sensitivity of budget projections to changes in interest rates.
Despite a growing chorus of debt deniers, most economics continue to agree that putting in place a long-term plan to responsibly address our growing debt would help promote long-term economic growth and stability.
The Atlantic held its 2013 Economy Summit yesterday, featuring more than twenty-four speakers on tax reform, the future of entitlement programs, and the role of debt and deficits in current policymaking. Experts from a wide range of different perspectives discussed how to deal with our debt and boost the economic recovery, arguably the two greatest challenges for policymakers today.
Last Friday, the CBO released a report showing how much the business cycle has affected budget deficits since 1960. The report shows the effect that automatic stabilizers -- features of the budget that tend to automatically push up/down spending and revenue based on cyclical economic effects -- have had and what the budget would look like assuming that the economy is operating exactly at its potential.
As our national debt and deficit continue to rise, a question that continues to be on many people’s minds is how rising debt levels impact the economy, especially as the American economy remains far from a full recovery. A report from the Organization for Economic Cooperation and Development (OECD)’s Economics Department on Debt and Macroeconomic Stability explains how rising public and private debt levels are related to macroeconomic instability.
In an interview with Forbes contributor Henry Doss, former Fiscal Commission co-chair Erskine Bowles explains just how our unsustainable debt trajectory threatens the future of U.S. innovation and may be preventing some businesses from investing due to the uncertainty.
First, Bowles says that debt and deficits really do deserve the center stage:
Update: CBO confirmed our numbers today, finding a remaining fiscal contraction of about 1 1/4 percent.
In September, the Federal Open Market Committee (FOMC) announced a third round of quantitative easing, consisting of purchases of mortgage-backed securities and long-term Treasuries. QE3 represented a break from previous rounds of easing because it did not involve an end date for the purchases. With that modification, there was some speculation that the FOMC would also set inflation and unemployment thresholds after which, if reached, the Fed would wind down its easing policy.
It is a point of consensus among those following the budget that the fiscal cliff would likely be very damaging for the economy in the short term, likely pushing it into a recession. However, there is less agreement on how quickly the cliff would hurt the economy.