How Dangerous Is The Debt?

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11 Sep 2009 05:27 pm

Bruce Bartlett ponders the question. This, at least, is reassuring:

Let's look at 1955, when the national debt equaled 69.5% of GDP, a little more than expected in 2019. That year there was virtually no inflation; the Consumer Price Index rose just 0.4%. Rates on Treasury bonds were less than 3%. Real GDP rose 7.2% and the Dow Jones industrial average increased by close to 20%. In some ways, 1955 was an anomalous year because the nation was still coming out of a recession that ended in May 1954. Nevertheless, it's clear that the nation was able to bear a level of federal debt that seems frighteningly large as we contemplate rising again to that level.

But that's the only sliver of good news. Much of that debt was from WW2, and that had ended. Most of our debt is in front of us, and one party is committed to never raising taxes and the other to never slashing entitlements. If he is to make fiscal progress in the next couple of years, Obama will have to struggle between a mighty rock and a very hard place.

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