Month: October 2011

How Big Is the Long-Term Debt Problem?

By James Kwak

Articles about the deficits and the national debt generally talk about unsustainable long-term deficits that will drive the national debt up to a level where scary things happen. Sensible commentators usually acknowledge that our current deficits are a sideshow and the real problems happen in the 2020s and 2030s due to modestly increasing Social Security outlays and rapidly increasing health care spending. I admit that this has generally been my line as well; for example, in a previous post I said that the ten-year deficit problem is entirely a product of extending the Bush tax cuts, but that even if we let them expire things will get worse over the next two decades.

But looking at the numbers, it’s not clear that the long-term picture is really that bad. Here I’ll lay out the numbers, and then, as they say on Fox News, you can decide. The summary is the chart above; the details are below.

Continue reading “How Big Is the Long-Term Debt Problem?” →

What Would It Take To Save Europe?

By Simon Johnson

Last weekend official Washington was gripped by euphoria, at least briefly, as people attending the IMF annual meetings began to talk about how much money it would take to stabilize the situation in Europe.  At least one eminence grise suggested that 1.5 trillion euros should do the trick, while others were more inclined to err on the side of caution – 4 trillion euros was the highest estimate I heard.

This is a lot of money: Germany’s annual Gross Domestic Product (GDP) is only about 2.5 trillion euros, and the combined GDP of the entire eurozone is about 9.5 trillion euros.  The idea is that providing a massive package of financial support would “awe” the markets “into submission” – meaning that people would stop selling their holdings of Italian or Spanish debt and thus stop pushing up interest rates.  Ideally, investors would also give Greece and Portugal some time to find their way to back to growth.

But this is the wrong way to think about the problem.  The issue is not money in the form of external financial support – provided by the IMF or other countries to parts of the European Union.  The real questions are: will Italy get complete and unfettered access to the European Central Bank, and when will we know this? Continue reading “What Would It Take To Save Europe?” →