Susan Jones: “CBO Director: ‘Large and Growing Federal Debt’ Could Produce ‘Fiscal Crisis’ – CNS News

Posted on :Feb 12, 2014

By: Susan Jones

CNS News

February 11, 2014

On the same day House Speaker John Boehner said he would bring a  “clean” debt ceiling bill to the House floor — and join Democrats in  voting for a 13-month extension of the debt limit — the head of the  Congressional Budget Office declared that the “large and growing federal  debt” could eventually increase the risk of a  “fiscal crisis.”

“The  large budget deficits recorded in recent years have substantially  increased federal debt, and the amount of debt relative to the size of  the economy is now very high by historical standards,” Elmendorf told the Senate Budget Committee.

“CBO  estimates that federal debt held by the public will equal 74 percent of  GDP at the end of this year and 79 percent in 2024 (the end of the  current 10-year projection period). Such large and growing federal debt  could have serious negative consequences, including restraining economic  growth in the long term, giving policymakers less flexibility to  respond to unexpected challenges, and eventually increasing the risk of a  fiscal crisis (in which investors would demand high interest rates to  buy the government’s debt).

Elmendorf also estimated that the  economy will grow at a “solid pace” in 2014 and for the next few  years. But he said the unemployment rate will probably remain above 6  percent until late 2016.

“Moreover, the rate of participation in  the labor force — which has been pushed down by the unusually large  number of people who have decided not to look for work because of a lack  of job opportunities — is projected to move only slowly back toward  what it would be without the cyclical weakness in the economy.”

(In  testimony before a House panel last week, Elmendorf said Obamacare  subsidies that help low-income people buy expensive health insurance are  a “disincentive for people to work.” He said the Affordable Care Act  “will reduce the total number of hours worked in the economy by between  one-and-a-half and two percent from 2017 to 2024.” That represents a  decline in the number of full-time-equivalent workers of about 2.0  million in 2017, rising to about 2.5 million in 2024.)

Beyond  2017, Elmendorf said CBO expects economic growth to “diminish to a pace  that is well below the average seen over the past several decades.” He  said the anticipated slowdown reflects long-term trends, such as slower  growth in the labor force due to the aging of the population.

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