CBO Director explains what a debt crisis would look like

At a Senate Budget Committee meeting this morning, CBO Director Doug Elmendorf warned that the US faces “daunting economic and budgetary challenges” ahead:

He said the longer the nation waits to reduce budget deficits the larger the changes will need to be — and the more “disruptive” these changes will be for the economy. …

But Elmendorf has said that under a plausible scenario, the U.S.’s cumulative deficits over the next decade could hit $12 trillion — not $6 trillion.

In his testimony, Elmendorf said policymakers face a “difficult tradeoff” between implementing deficit reduction during a time when the economy is still struggling to gain strength versus delaying deficit cuts until the future when more far more draconian changes are needed. …

At his briefing Wednesday, Elmendorf said that if American fiscal policy is unchanged, the U.S.’s net interest costs alone over the coming decade could reach $5 trillion.

Elmendorf repeated there is no way to know for sure when American fiscal policy reaches a “tipping point” in which a major crisis would ensue.

But he said that investors could “become increasingly nervous” if the U.S.’s fiscal trajectory doesn’t change.



Senator Ron Johnson asked Elmendorf to explain in layman’s terms what a debt crisis would look like to a family. His response is below:

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10 thoughts on “CBO Director explains what a debt crisis would look like

  1. I don’t know if protectionism is really the answer to US economic woes… it seems rather a negative solution, although arguably the currency protectionism of China has worked well for them…. It will be interesting to see if China continues to grow economically though in the next few decades, history suggests there economy was disproportionately small in the 19th and 20th Centuries, rather than being unusually large now.

    I’m not sure that they would be so scared about a reduced US market in the long term, although in the short term of course it would be a disaster. As I understand it they are very focused on building a greater internal market now, and creatin new trade with Africa and South America as they are not so confident in US and Japanese demand remaining high in the future.

  2. Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
    Winston Zeddemore: The dead rising from the grave!
    Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!

  3. It’s just a matter of time and a question of when. Wait until the end of QE 2 is complete and the inflation that follows. Of course there is no inflation if you ask the elitists in the government.

  4. Not a good answer. Too much bureaucrat-ese. It would clearly be damaging to people. How about saying gas prices would soar past $10 a gallon. Food prices would soar and folks would become bean/rice/noodle eaters, because there would not be any fresh food being imported/transported and the cost of meat/fish would soar because of energy costs. More and more folks would be without power or setting thermostats in 50s. Europe or UN is not going to bail the US out if China cuts off our borrowing. Saudi Arabia would tell us “no oil, it’s just business – you have to understand”

    1. We feed the Chinese beast. It’s like the relationship between a drug dealer and an addict both need each other. If we suddenly stopped purchasing from China their situation would potentially be just as grave as ours.

      I think things will get ugly but I think out of that we will decide perhaps we should use the oil that we’re surrounded by. It’s not for a lack of oil in the US it’s the lack of will to use it. 10$ a gallon will change that situation quickly. The US really doesn’t need much from the out side world that we don’t already have here. Except perhaps some precious metals.

  5. Francis Fox Pixen is licking her lips at the prospect of a violent uprising, such as those seen across Europe.

  6. Francis Fox Pixen is licking her lips at the prospect of a violent uprising, such as those seen across Europe.

  7. versus delaying deficit cuts until the future when more far more draconian changes are needed

    I would suggest that we’re there already.

    States are figuring out how to declare bankruptcy. How much worse does it need to really get before we actually admit it’s that bad?

    Or is that exactly what Mr. Elmendorf is suggesting here ever so slyly…..

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