THE NEXT GREAT CRISIS: AMERICA'S DEBT

June 12, 2009

In 2009 the United States will post a deficit of $1.8 trillion.  Even looking forward to 2019, the deficit will still be in the trillions, $1.2 trillion to be exact.  But this can't go on forever.  What will shock America into action is the prospect of fiscal collapse.  And making the challenge far great: Obama's budget is packed with a wish list of expensive new programs, led by a giant health care reform plan, says CNNMoney.com.

Let's divide Obama's budget projections into the plausible, the impossible, and the questionable.  First, the plausible:

  • It's optimistic but highly possible that spending on Fannie Mae, Freddie Mac and the Troubled Assets Relief Program (TARP) will fall from more than $500 billion this year to around $20 billion in 2010, and keep declining.
  • It's also plausible that the costs of the wars in Afghanistan and Iraq will fall to around $50 billion a year.

Now the practically impossible:

  • Obama is using a timeworn gimmick by pledging that nonmilitary discretionary spending will rise just 2.1 percent a year from 2012 to 2019; it won't happen.
  • He is increasing spending in this category, which includes education, health research and homeland security, 9 percent in 2009 and 10 percent in 2010.

Now for one of the questionable projections -- his health care plan:

  • In his 2010 budget request, Obama proposed a $635 billion "down payment" toward universal health coverage over 10 years.
  • He plans to offset the down payment from two sources: from limiting deductions for high earners and from squeezing the balance from Medicare through curbing unnecessary hospital stays and ending a plan offering HMO services.

But, the administration's attachment to reform goes far beyond the campaign to provide universal care.  Obama is also counting on massive investment in infrastructure to reduce medical costs by spreading electronic record keeping, promoting prevention and wellness and conducting research to determine the most effective therapies.  It's impossible to predict how much money those initiatives would actually save, says CNNMoney.com.

Source: Shawn Tully, "The next great crisis: America's debt," Fortune/CNN.com, June 11, 2009.

For text: http://money.cnn.com/2009/06/05/retirement/next_crisis_americas_debt.fortune/index.htm

 

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