Fiscal Policy Panel Warns of Perils of Ballooning Debt; Investors May Lose Confidence

The Washington Times (Washington, DC), January 14, 2010 | Go to article overview

Fiscal Policy Panel Warns of Perils of Ballooning Debt; Investors May Lose Confidence


Byline: David M. Dickson, THE WASHINGTON TIMES

The nation's ballooning debt will inevitably limit America's future wealth by reducing the size of the economy and the growth of its capital stock, while increasing the nation's dependence on foreign creditors, according to a new survey by a panel of top fiscal policy experts.

A report issued Wednesday by the National Academy of Sciences (NAS) and the National Academy of Public Administration warned that, unless policies are changed, the cost of financing the government's rapidly expanding debt will rise sharply, especially after today's relatively rock-bottom rates return to historical levels. This cost will cut into funds to finance other government programs, the report, Choosing the Nation's Fiscal Future, concluded.

Moreover, as debt continues to increase, foreign and domestic investors may lose confidence in the U.S. economy, according to the analysis prepared by the NAS' 21-member Committee on the Fiscal Future of the United States. The committee includes three former directors of the Congressional Budget Office (CBO) - June O'Neill, co-chairman Rudolph Penner and Robert Reischauer.

This loss of confidence would likely force interest rates higher, reduce domestic investment and push down the value of the dollar, setting off a vicious cycle that could threaten the long-term economic stability of the nation.

Our committee members have varying political backgrounds and views, but we all agree that future economic prosperity is at grave risk if our nation does not change its fiscal course, said John Palmer, a former trustee for Medicare and Social Security who co-chaired the committee.

The greatest concern, the panel said, is the rapid growth in spending for Medicare and Medicaid, the federal health programs for the elderly and the poor. …

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