America’s Financial Future: A Dirt Sandwich?

America’s Financial Future: A Dirt Sandwich? August 8, 2011

Today in Slate, William Saletan that our country’s left-right ideological divode will soon be rendered irrelevant — by its creditors, of all people. The deal they force on America will involve both tax hikes and entitlement cuts — in other words, the worse of both worlds. As he explains:

Their message was delivered on Friday by Standard & Poor’s, which issues global credit ratings. S&P is downgrading the U.S. because our debt is out of control. The company explains:
When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers—Canada, France, Germany, and the U.K.—… the trajectory of the U.S.’s net public debt is diverging from the others. … in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.
In other words, it’s safer to invest in these countries than in us. If investors agree, there goes our gravy train. To keep borrowing money, we’ll have to pay higher interest. Loans will become more expensive, the economy will slow, and our debt will increase in a vicious circle. No anti-tax or Medicare-protection pledge will stop this merciless strangulation.

Our politicians, still catering to the right and left, are reacting to the downgrade by blaming each other. They aren’t getting the message. The debate between higher taxes and deep entitlement cuts is over. Our creditors are going to make us do both.

The $2 trillion deal we just agonized over is peanuts. S&P projects that U.S. debt will reach 85 percent of our gross domestic product within a decade, and we’re approaching an “inflection point on the U.S. population’s demographics and other age-related spending drivers,” which will accelerate our insolvency. In case you missed the implicit message of “demographics” and “age-related,” the company spells it out: Last week’s debt agreement “envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.”

I have little to say on the subject; I’m too busy planning for the non-future. Still, Saletan’s piece strikes me as the perfect way to start a Monday.

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