In this policy paper released by CRFB's Fiscal Roadmap Project, CRFB argues that unless we change course, "a fiscal crisis in one form or another will surely ensue." The paper discusses six realistic crisis scenarios the U.S. could face if debt continues on its upward trajectory. A crisis could be gradual or it could be sudden.
The U.S. is not alone in facing massive budget deficits and an exploding debt, nor is it the first country to face this type of situation. There are important lessons we can learn from other countries' fiscal turnarounds. In this paper CRFB discusses the experiences of Canada, Denmark, Finland, Ireland, and Sweden in successfully bringing their debt under control.
A year after its creation, the ARRA has disbursed about $300 billion, of the now $862 billion, through spending increases and tax breaks. Almost all economists agree that the ARRA has helped to mitigate the crisis, but there is debate over the extent to which it has helped. If policymakers decide to enact additional stimulus or extend existing provisions, they should focus on measures which can do the most good at the least cost, and should fully offset any costs over the long-run.
Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008 discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion. Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story. Just holding discretionary spending growth to inflation would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses.
In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America's expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the commission.
In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize debt held by the public at 60 percent of GDP. Given our current fiscal path, reaching this debt goal will not be easy. While the Peterson-Pew Commission does not endorse specific tax and spending policies to meet this goal, Budget Blueprint: Paths to 60% aims to demonstrate the types and magnitude of necessary policy changes.
On December 9, Secretary Geithner requested that TARP be renewed through October 3, 2010. Having spent a net of $386 billion, the $700 billion program is generally considered to have helped stabilize financial markets and the real economy. However, problems and risks remain.