Stimulus/Economic Policy

A Preventable Crisis: Exploring Fiscal Crisis Scenarios for the United States

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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.

Happy Birthday ARRA: The American Recovery and Reinvestment Act One Year Later

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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.


CRFB Reacts to the State of the Union Address

Bill Frenzel
Tim Penny
Charlie Stenholm

Maya MacGuineas
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Martin Sabo
Gene Steuerle
David Stockman
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.

Elmer Staats
Robert Strauss

CRFB Reacts to the State of the Union Address
January 27, 2010

The Committee for a Responsible Federal Budget commends President Obama for his focus on deficit reduction in his State of the Union address, and hopes that he will follow through by pressing Congress to enact medium- and long-term deficit reduction policies over the next year.

As the President remarked tonight, we find ourselves in a “massive fiscal hole… a challenge that makes all others that much harder to solve.” And he argued, rightly so, that “if we do not take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.”

The President offered three proposals, in particular, which would be promising steps in the right direction:

  • A three-year non-security discretionary spending freeze, beginning in fiscal year 2011, and enforced by a veto, if necessary;
  • A bipartisan fiscal commission – created by executive order and fashioned after the Conrad-Gregg proposal – to provide a specific set of solutions to our fiscal problems;
  • The reinstatement of statutory pay-as-you-go laws (although as we’ve mentioned before, we are concerned about the large number of exemptions).

“We are thrilled that President Obama understands the threat of ever-rising debt, and is making some concrete proposals to begin to address it,” said Maya MacGuineas, President of the Committee for a Responsible Budget. “But actions speak louder than words. In the coming weeks and months, we urge the President to bring together members of both parties and begin taking concrete actions to stabilize the debt once the economy recovers.” 


Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or


Red Ink Rising

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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.

Troubled Asset Relief Program: Year-End Review

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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.  

Wake Up, America! We Need a Fiscal Recovery Plan

Roll Call | July 22, 2009

With all the exhausting economic challenges America faces today, we all might be inclined to put the alarm clock on snooze and hope to dream it all away. But it’s time to wake up, America. It’s time for the president to map out a fiscal recovery plan to sustain our children, our grandchildren and our country’s future.

The current reality is bleak. Consumers aren’t spending; banks aren’t lending; housing prices are still headed down; and unemployment continues to climb. While it is too soon to know whether to heed them, calls for another round of stimulus are increasing.

At the same time, the country faces massive deficits from all the borrowing to help fix the economy, as well as longer-term budget imbalances driven by aging and health care costs. Realistic projections show the debt growing indefinitely, to unsustainable levels. The administration’s budget plan would add trillions of dollars to the debt, not even counting the money that is being used to try to fix the economy.
Managing the seemingly contradictory goals of providing the economy with sufficient stimulus, but doing so in a fiscally responsible manner, is quite a challenge.
The solution is to continue with stimulus policies as necessary, but at the same time, the president should immediately announce a plan to reduce the deficit and close the long-term fiscal gap. Announcing the plan today, though it would only be phased in once the economy is strong enough, would help the country regain its fiscal credibility and would also be critical for the recovery.
It would be premature and potentially damaging to begin significantly reducing our budget deficits and enormous federal debt as the economy struggles to find its footing. But continuing to borrow hand-over-fist with no end in sight also jeopardizes any economic recovery. Already, “bond vigilantes” have pushed up interest rates on fears over higher inflation or default from an unsustainable U.S. debt outlook. And our major foreign creditors, including China, Russia, Brazil, and South Korea, have publicly cautioned the United States about the huge debt buildup — an early sign that we may not be able to continue borrowing cheaply from them in the future. Higher interest rates — a likely outcome of ongoing large borrowing needs — threaten both to choke off recovery and to add to federal interest costs.
In light of massive government borrowing, it is now more critical than ever for the U.S. government to have fiscal credibility. During times of economic and financial crisis, we must work to minimize the cost of new borrowing and maintain the confidence of creditors, taxpayers and financial markets. Waiting too long to lay out a plan to put the budget back on a sustainable path, or adding more stimulus into the economy without explaining how the debt will be paid off in the future, will ultimately lead to a fiscal crisis with a sharp runup in interest rates as investors demand compensation for their fears of hyperinflation or default, or a rapid fall in the dollar as creditors seek less risky investments elsewhere. Once markets and investors have lost confidence in the United States, it will be extremely hard for us to get it back. Experience in many foreign countries, including those in the European Union, suggest that advance announcements of what economists call a “medium term fiscal consolidation plan” can help avert fiscal crises.
Once an economic recovery is on solid footing, the fiscal recovery plan should be implemented gradually. Any such plan would likely include changes to the largest entitlement programs, other areas of government spending, and the revenue side of the budget. Specific policies might include raising the retirement age, scaling down government entitlement benefits for the well-off, and eliminating government programs the Office of Management and Budget finds to be outdated or inefficient. Introducing real specifics to a realistic budget plan will not only serve to reassure markets and strengthen an economic recovery, but it will also offer the public a realistic understanding of what will be necessary to fix the disastrous budget situation we now face.


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