The economy is cooling but the US is a frog in hot water

[mystery-ak]

 The economy is cooling but the US is a frog in hot water
by Robert L. Bixby, opinion contributor - 02/18/24 12:00 PM ET

We’ve all heard that if you put a frog in boiling water, it will jump out, but if you put a frog in warm water and slowly turn up the heat it will stay put until boiled to death. That may or may not be true, but it is a useful allegory of how incremental changes can accumulate to dangerous or even fatal levels if ignored.

The unfortunate frog came to mind as I read through the Budget and Economic Outlook: 2024 to 2034 released last week by the Congressional Budget Office (CBO). Over the next 10 years, deficits will gradually rise from 5.6 percent of Gross Domestic Product (GDP) to 6.1 percent under current law. To put that in context, the average deficit over the past 50 years is 3.7 percent of GDP.

Meanwhile, government debt held by the public will grow from 99 percent of GDP this year to 116 percent in 2034, more than twice its 50-year average and well above the record high set in 1946 at the end of World War II.

The water is heating up and we are the frog.

This didn’t have to happen. If you look back to just the beginning of this century, the water was not nearly so hot. The budget was in surplus and the debt, at 31.5 percent of GDP, was less than a third of what it is today, let alone what it is projected to be in the future.

As the water temperature steadily rose, we passed on every opportunity to jump free. It is now fair to ask whether we have waited too long.

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https://thehill.com/opinion/finance/4472654-the-economy-is-cooling-but-the-us-is-a-frog-in-hot-water/

[Free Vulcan]

Article misses the point that interest needs to be paid, either from tax and other revenues, or by printing the money.

You can also default and then have to borrow at very high rates if anyone will lend to you. Either way, printing or default will result in a weakened to near worthless currency and fiscally hobble the FedGov if it survives, and crash the economy. Or last option make massive cuts to run surpluses.

That is unlikely because once govt is half your economy or more, massive govt cuts will mean a vicious cycle of economic down spiral and massively less revenue till the govt is a far smaller, more balanced percentage of the economy, meaning surpluses will be difficult to achieve till that plays out.

Tax and regulatory reform might help eventually to spark the economy by shifting things back to the private, producers side, yet in the short term whatever we do will be painful. However it goes, fiscal restraint will be enforced.

But in the immediate, we are backed into a corner and our options are few if any.