Thursday, December 02, 2010

Zuckerman: The Danger of a Global Double Dip Recession Is Real

http://politics.usnews.com/opinion/mzuckerman/articles/2010/11/29/the-danger-...

> But now we are running annual deficits of $1.4 trillion, about 10 > percent of the total economy. We have compounded the deficits we > accumulated over the last decade, so they now reach 61 percent of > GDP. Only once before has the ratio of federal debt to GDP come in > above 60 percent. That was after World War II. And our federal debt > ratio today doesn't even take into account Social Security and > Medicare. Total liabilities and unfunded promises for Medicare and > Social Security were about $62 trillion at the end of the last > fiscal year, tripling from the year 2000, according to the > calculations of former Comptroller General David Walker. Sixty-two > trillion dollars is $200,000 per person and $500,000-plus for the > average household. As Walker put it, the problem with these trust > funds is "you can't trust them [and] they're not funded." Therefore, > he asserts, we ought to count them as a liability, which would bring > the debt-to-GDP ratio to 91 percent.

> In the United States, gloom has spread to our policymakers on how to > deal with our economic dilemmas. Monetary policy is relatively > ineffective because we are in, or near, liquidity trap conditions. > Our economy is so weak that lower interest rates and other monetary > tools are not working. In the liquidity trap, no matter how much > money is thrown into the system, people have so little confidence > that they tend to hoard it. Similarly, fiscal policy is beginning to > reach its limits. High debt levels can raise concerns about the > creditworthiness of our government. This in turn could lead to > higher long-term interest rates that would aggravate the economic > contraction.

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