Writing in Newsweek magazine, in his article “Up Against A Wall Of Debt, Part II” Robert J Samuelson reports that the International Monetary Fund confirms his concern that the United States, Great Britain, Japan and other major nations face increasing risk of defaulting on their sovereign debt obligations.
These kinds of concerns are familiar in the blogosphere. Being validated by Samuelson, Newsweek and the IMF is frankly scary. The best one can hope is that this kind of reporting will hopefully be a warning to those continuing to push for out of control spending in Washington and other capitals.
The fundamental message Samuelson sends:
“The political implications of these dry numbers are chilling. To prevent an unending upward spiral of debt would require huge spending cuts or tax increases. The IMF report doesn’t suggest that those be made immediately, because doing so might cripple the fragile economic recovery. But the report does argue that without these adjustments, government debts could become unmanageable.”
“To show the size of needed changes, the IMF performed one final exercise. It estimated the spending cuts or tax increases needed over the next decade to return a country’s debt-to-GDP ratio to 60 percent by 2030. For the United States, the changes would amount to 8.8 percent of GDP. In today’s dollars, that’s about $1.2 trillion and roughly a third of the existing federal budget. But again, some other countries would face even larger adjustments: 12.8 percent of GDP for Great Britain, 10.7 percent for Spain, 13.4 percent for Japan, 11.8 percent for Ireland, and 9 percent for Greece.”
We are in for some interesting politics in the years ahead.