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Niall Ferguson on the Debt Bomb

12:27 PM, Nov 30, 2009 • By MATTHEW CONTINETTI
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Schedule some time today to read Niall Ferguson's Newsweek essay on the coming fiscal crisis. Here's a sample:

[T]here is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman. In 1945, the figure was 113 percent.

Well, let's leave aside the likely huge differences between the United States in 1945 and in 2039. Consider the simple fact that under the CBO's alternative (i.e., more pessimistic) fiscal scenario, the debt could hit 215 percent by 2039. That's right: more than double the annual output of the entire U.S. economy.

Ferguson's long-term outlook? He says the most likely scenario is that debt-service will make up a large and growing portion of the federal budget in the decades to come, crowding out spending on national defense. And as military spending declines, so will America's capacity to provide the global public good of international security. America's economic and strategic position will be weakened. Better dust off that Mandarin phrase book.

When you're in budgetary pickle like this, the only proper response is to grow your way out. That's how America recovered from its post-World War II debt burden, when the public debt was 113 percent of GDP. The problem today is that the Obama administration's tax-spend-and-regulate economic policies could hamper robust growth. So the debt bomb keeps on ticking.