The Homa Files

Economist Alan Blinder’s WSJ op-ed put the debt ceiling issue into perspective:

Consider inflows and outflows of cash to and from the Treasury … at average fiscal 2011 rates, receipts cover only about 60% of expenditures.

So if we hit the borrowing wall traveling at full speed, the U.S. government’s total outlays — a complex amalgam that includes everything from Social Security benefits to soldiers’ pay to interest on the national debt — will have to drop by about 40% immediately.

A 40% shortfall translates to over $4 billion a day, including Saturdays and Sundays.

For openers, suppose the federal government actually does reduce its expenditures by 40% overnight.

That translates to roughly $1.5 trillion at annual rates, or about 10% of GDP.

That’s an enormous fiscal contraction for any economy to withstand, never mind one in a sluggish recovery with 9% unemployment.

Of course, Blinder insinuates that the risk is too great.

My view: gotta face the issue some day, why not now?

This entry was posted on May 24, 2011 at 6:05 am and is filed under Debt - Deficit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.