Today, the Congressional Budget Office released its annual update on the nation's long-term budget outlook. The numbers are scary -- if Congress continues to conduct policy as it has been, the nation's debt will eclipse 101 percent of GDP by 2024 and 250 percent by 2047. By way of comparison, Greece's debt-to-GDP ratio stood at 165 percent in 2011. Of course, the CBO warns that an actual fiscal crisis (in which investors flee U.S. debt and drive up interest rates, creating a scary downward spiral) could suddenly be triggered well before debt gets that high. "Unfortunately, there is no way to predict with any confidence whether and when such a fiscal crisis might occur in the United States," the CBO warns. "In particular, there is no identifiable tipping point of debt relative to GDP that indicates a crisis is likely or imminent. All else being equal, however, the larger the debt, the greater the risk of a fiscal crisis."
The primary driver of the debt problem is the aging of the population and medical inflation, which are increasing the cost of Medicare, Medicaid and Social Security. One of the key takeaways from the report is that the longer the U.S. waits to do something to address the fiscal problem, the more difficult the choices become.
"CBO’s analysis suggested that, depending on the policy used to stabilize the debt, delaying action for 10 years— which would allow the debt-to-GDP ratio to rise by an additional 40 percentage points under the assumptions used for that analysis—would cause real output to be lower by between 21⁄2 percent and 7 percent in the long run than it would have been if the ratio had been stabi- lized earlier at a lower level," the report read.
The CBO later added, "Earlier action would permit the necessary changes in policy to be smaller and more gradual, and it would give people more time to adjust to them—although it would also require more sacrifices sooner from older workers and retirees for the benefit of younger workers and future generations."
Though liberals have tried to portray House Budget Committee chairman Rep. Paul Ryan's proposed reforms as draconian, they're actually an attempt to enact necessary changes over time rather than delaying actions to the point where any changes would have to be sudden and severe.