South By North Strategies, Ltd.

In a post at The Baseline Scenario, James Kwak wonders just how big America’s long-term debt problem actually is. After running the numbers, Kwak concludes the following:

So the bottom line is: If we extend the Bush tax cuts, we have very big deficit problems over the next ten years and the next twenty-five years. If we let them expire, there is no ten-year problem. That’s the same as in my earlier post, and I don’t think that’s controversial to anyone who understands the numbers.
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What’s more controversial is my claim that if we let the tax cuts expire, there is a twenty-five year problem, but it’s not a huge one. Many other people argue that even if we let the tax cuts expire, we still have to cut Social Security and Medicare. On my reading, the problem is a national debt at 69% of GDP and growing steadily. If we have another financial crisis, or we start losing our status as the reserve currency, that could be a serious problem. My opinion is we should do something about it. But it’s not necessarily the end of the world.