US debt to hit $20 trillion by 2020

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US debt to hit $20 trillion by 2020
By Tom Eley
28 August 2009

Forecasts published this week by the Obama administration and the
Congressional Budget Office (CBO) estimate that the US national debt
will nearly double over the next 10 years to about $20 trillion.

The White House anticipates that cumulative annual deficits will
result in $9 trillion in additional debt, an increase of $2 trillion
over an estimate it made in February, while the CBO predicts $7.1
trillion in new debt for the same period. The current national debt
stands at over $11 trillion.

The Obama administration, politicians of both major parties and media
commentators immediately seized on the forecasts to step up demands
for major cuts in social spending, especially for Medicare, Medicaid
and Social Security, while disregarding costly fiscal burdens such as
the Pentagon budget, the wars in Iraq and Afghanistan, Bush-era tax
cuts for the wealthy, and the multi-trillion-dollar bailout of the
finance industry.

As the White House Office of Management and Budget (OMB) and CBO
forecasts make clear, these policies have combined with the economic
slump to trigger a grave fiscal crisis for the US.

This year’s deficit, $1.58 trillion, is 11.2 percent of the nation’s
gross domestic product (GDP), the largest deficit as a proportion of
GDP since 1945, the last year of World War II. For the fiscal year
2010, borrowing will have to provide 40 percent of all government revenue.

The economic crisis has reduced tax revenues by 17 percent, a sharper
decline than any other year since 1932, the nadir of the Great Depression.

Income tax collections have been decimated by unemployment. In the
same report, the OMB predicted unemployment will surpass 10 percent by
year’s end and remain high. The CBO said the jobless rate will be
close to 10 percent even at the end of 2010 and will still be at 8
percent at the close of 2011.

By 2019, the national debt will increase to nearly 70 percent of GDP,
up from 48 percent this year, the White House predicts. The same year,
the deficit will be equivalent to 5.1 percent of GDP. Economists
consider deficits higher than 3 percent of GDP to be unsustainable.
Not a single budget will hit that mark over the next decade, according
to the forecasts.

The differences between the White House and CBO figures are based
largely on the question of whether or not the tax cuts for the wealthy
enacted under President George W. Bush will be rescinded. The CBO,
which bases its estimates on existing legislation, assumes that the
tax cuts will expire in 2011 as currently required by law. The Obama
forecast presumes, on the other hand, that those tax cuts will remain
largely in place—hence its higher budget deficit predictions.

If the CBO had taken into account the perpetuation of the Bush tax
cuts—which Obama campaigned against in his run for the presidency—its
deficit estimates would likely have been significantly higher than
those of the Obama administration, according to analysts.

The White House forecast is based on the assumption that the economy
will grow at a rate of 2 percent in 2010, achieve rapid growth of 3.8
percent in 2011, and rise to over 4 percent from 2012 through 2014,
measured by GDP. If these rates are not realized—the latter figures
are substantially higher than average annual growth since
1947—long-term budget deficits will become significantly worse.

The Obama administration and congressional leaders of both parties
responded to the new data by proclaiming that they demonstrate the
unsustainability of Medicare and Medicaid spending (the health
insurance systems for the elderly and poor, respectively) and spending
on Social Security, the payroll tax-funded government pension system
enacted during the Great Depression.

Peter Orszag, Obama’s director of the OMB, pinned blame for the
deficits on Medicare and Medicaid, calling them “the key driver of our
long-term deficits.” Orszag called for “serious steps to put our
nation back on a sustainable fiscal path.” The OMB also noted that
Obama “is committed to addressing the shortfall in Social Security
system.”

Federal Reserve Chairman Ben Bernanke, whom Obama renominated to head
the US central banking system the same day as the budget forecasts
came out, has in recent months stepped up his calls for major
reductions in entitlement programs. In Congressional testimony in
2007, even before the financial crisis, Bernanke attributed the
declining fiscal position of the US to social spending.

“Addressing the country’s fiscal problems will take persistence and a
willingness to make difficult choices,” he said. “In the end, the
fundamental decision that the Congress, the Administration, and the
American people must confront is how large a share of the nation’s
economic resources to devote to federal government programs, including
transfer programs such as Social Security, Medicare, and Medicaid.”

Democrats joined with Republicans in proclaiming that the new data
suggests that health care legislation will have to be less costly,
with any vaguely palliative measures likely to be dumped.

“Both sides acknowledged... the debt projections will likely force
Democrats to find new real savings in their health-care bills or risk
defeat,” wrote the Wall Street Journal. Reuters reported congressional
Democrats saying that “spending on retirement and health benefits must
be put under control as millions of Baby Boomers retire.”

”Today’s budget numbers send a clear signal that the time for putting
off tough choices is over and the time to act is now,” said Kent
Conrad, the Democratic chairman of the Senate Budget Committee.

The Obama administration, whose ten-year budget already takes into
account $622 billion in funding cuts to Medicare and Medicaid, is
promoting the false notion that social spending is primarily
responsible for the deficits and the economic crisis, and that
therefore working people must shoulder the burden of spending cuts.

In fact, of the $700 billion increase in spending for the current
fiscal year over the previous year, the CBO estimates that about $424
billion was spent on the bailout of Wall Street through the Troubled
Asset Relief Program (TARP) and the rescue of the mortgage lending
giants Fannie Mae and Freddie Mac, while only $115 billion came
through Obama’s stimulus spending.

The total allocation to Wall Street is practically inestimable, but
the special inspector general for the Troubled Asset Relief Plan
(SIGTARP), Neil Barofsky, has said that among all of its financial
stabilization programs, the federal government is on the line for as
much as $23.7 trillion—$3.7 trillion more than the total national debt
the White House is predicting for 2020.

The US spends far more funding its military, war, and spy operations
than it does on Medicare and Medicaid. In 2009, for example, the
federal government spent a combined $632 billion on Medicare and
Medicaid, while it spent $822 billion on defense spending, “the war on
terror,” and the wars in Iraq and Afghanistan. The US has spent almost
$903 billion on the two wars since 2001.

Another expenditure that will eclipse spending on entitlements in the
coming years is the interest the US must pay to service its debt. In
2008, the US paid $451 billion in interest on the national debt. A
significant proportion of these interest payments find their way to
the major banks that have been bailed out by US taxpayers over the
past year.

In every respect, the Obama administration is carrying on a class war
policy against workers. Obama has increased funding for the military
and the wars in Iraq and Afghanistan, and he has repeatedly promised
he will do “whatever it takes” to cover the gambling debts of the Wall
Street finance houses. These expenditures are taken for granted, and
will continue, as will a tax regime that expands the personal fortunes
of a thin layer of the extremely rich.

Obama’s efforts to resolve the budget crisis will overwhelmingly
target spending that benefits the working class.

Even so, the long-term ability of the US government to finance its
debts is subject to increasing doubt, placing pressure on the dollar
and its status as the world reserve currency, which has helped the US
to sustain enormous trade deficits.

The central banks of China, Japan, and a number of other nations buy
US government-issued securities in order to sustain US purchasing
power for their exports. At the end of June, China held over $776
billion in US Treasury securities; Japan over $711 billion.

While any shift away from the US dollar is fraught with incalculable
dangers for its biggest foreign holders, the insolvency of the US
state and, more fundamentally, American capitalism, is causing the
subject to be mooted with increasing regularity.

On Wednesday, French President Nicolas Sarkozy reiterated demands that
a new global reserve currency be created. “The political and economic
reality of a multi-polar world will eventually have to be transmitted
on the monetary level,” Sarkozy said from Elysée Palace. Similar calls
have been made by leaders representing China, Russia and Brazil, among
other states.

The demands of foreign creditors and mounting pressure on the dollar
are further propelling the US ruling class attack on health care,
retirement, and other forms of social spending.

http://www.wsws.org/articles/2009/aug2009/debt-a28.shtml

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