Without painful austerity measures, "the probability of a sudden fiscal crisis" is mounting

The Congressional Budget Office has issued a stark warning on the nation's future in a July 27 report titled "Federal Debt and the Risk of a Fiscal Crisis." Basically, the U.S. is looking a lot like Greece and those other European nations facing sovereign-debt implosions. From the CBO summary:

"Over the past few years, U.S. government debt held by the public has grown rapidly - to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II."

"Further increases in federal debt relative to the nation's output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place."

"Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels."

"Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States."

"Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis. ... As other countries' experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory."

"To restore investors' confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner."

Read Article