The Obama Forecast: Debt Crisis With A Chance of Inflation

Economic Concerns Rise Amidst Democrats’ Refusal to Offer Serious Solutions to America’s Growing Deficits

Fresh off Standard and Poor’s warning of the worsening debt outlook for the U.S., Bloomberg Government just released a study arguing that the “price of inaction” from Democrats’ dithering on the growing national debt will be either a debt crisis or enormous inflation:

BLOOMBERG GOVERNMENT STUDY: “PRICE OF INACTION: INFLATION OR A DEBT CRISIS.” (Dr. Christopher Payne and Dr. Ted Buckley, “Price of Inaction: Inflation or a Debt Crisis,” Bloomberg Government, 4/21/2011)

U.S. ON TRACK FOR DEBT LEVELS GREATER THAN GDP: “Short of default, a bout of inflation similar to that of the 1970s may be the only way for the U.S. to reduce its debt burden if lawmakers fail to pass deficit-reduction measures, according to a Bloomberg Government Study released today.

“The study projects the debt would fall to 61.8 percent of gross domestic product in 2020 under a scenario that repeated the 1970s, when consumer prices climbed 8.1 percent a year on average. A return of the 1980s, 1990s or 2000s would result in debt levels anywhere from 96.4 percent to 102.4 percent of GDP.” (Steve Matthews, “Inflation 1970s-Style May Be What Cuts U.S. Debt, Study Finds,” Bloomberg, 4/21/2011)

This comes after similar concerns were voiced by Standard and Poor’s following their downgraded outlook on U.S. debt holdings, which was announced immediately after a sharply partisan budget speech from Obama which reduced confidence in Democrats’ willingness to reach any kind of constructive deal on cutting spending:

STANDARD AND POOR’S:  OUTLOOK FOR SPENDING CUTS POOR AFTER OBAMA BUDGET DO-OVER SPEECH. “The ratings firm surprised markets as it cuts its outlook on U.S. government debt to ‘negative’ from ‘stable,’ to account for budget deficits and rising government indebtedness. ‘We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,’ credit analyst Nikola G. Swann wrote.

“ ‘The biggest fear we have is that politicians don’t take the prudent steps they need to get the deficit under control,’ Channing Smith, portfolio manager at the Capital Advisors Growth Fund said, calling the S&P move ‘overdue.’ He said his fund views the deficit as a three-to-five year problem that ‘could become a problem much sooner.’” (Brendan Conway, “S&P Warning Drags Down U.S. Stocks,” The Wall Street Journal, 4/18/2011)

“NO SIGNIFICANT MEASURES” TAKEN YET TO ADDRESS GROWING DEFICITS:“ ‘The above scenarios paint a bleak picture of the trajectory of government debt to 2020, assuming no measures are taken to reduce the deficit,’ Bloomberg Government economists Christopher Payne and Ted Buckley wrote in Washington. ‘Given recent economic history, it does not look likely that the U.S. can grow its way out of the debt problem.’ …

“ ‘No significant measures’ have been taken to address growing U.S. deficits, according to today’s report, echoing the concern of Standard & Poor’s, which said April 18 the nation risks losing its AAA credit rating unless policy makers agree on a plan to reduce the gap and national debt by 2013.” (Steve Matthews, “Inflation 1970s-Style May Be What Cuts U.S. Debt, Study Finds,” Bloomberg, 4/21/2011)

Recent polling demonstrates that Americans see Democrats demagoguing the deficit debate, and they don’t like it. Obama and Democrats earn high disapproval ratings on their handling of the economy and the deficit:

USA TODAY POLL: GOP HAS 12-POINT ADVANTAGE OVER DEMOCRATS ON BUDGET, 5 POINT EDGE ON ECONOMY. “Republicans hold a 12-percentage-point edge over Democrats as the party better able to handle the budget, and a 5-point edge on the economy in general.” (Susan Page, “GOP’s Gamble On The Budget Pays Off, So Far,” USA Today, 4/26/2011)

NEW YORK TIMES/CBS POLL: PLURALITY TRUSTS GOP OVER OBAMA TO MAKE RIGHT DECISIONS ON FEDERAL BUDGET DEFICIT. 44 percent trust Republicans, 39 percent trust Obama to handle budget deficit better. (“New York Times/CBS News Poll: 2012 Republicans, Obama and the Economy,” The New York Times, 4/21/2011)

59 PERCENT DISAPPROVE OF OBAMA’S HANDLING OF FEDERAL BUDGET DEFICIT. (“New York Times/CBS News Poll: 2012 Republicans, Obama and the Economy,” The New York Times, 4/21/2011)

Meanwhile, Democrats remain in denial over the economic threat posed by the nation’s ongoing deficits. As a vote of the debt ceiling looms in May, 114 Democrats are circulating a letter calling for increasing the debt ceiling without accompanying spending cuts to address America’s debt crisis:

114 HOUSE DEMOCRATS RALLY AROUND BLANK CHECK FOR FUTURE SPENDING. “As the New York Stock Exchange dropped sharply this morning in reaction to a report that Standard & Poor’s downgraded America’s long-term credit outlook to negative, Rep. Peter Welch (D-Vt.) released the names of 114 House Democrats in support of raising the debt ceiling without conditions.” (“As Stock Market Drops Over Worries About US Debt, Welch Leads 114 Democrats in Demanding A Clean Extension of Debt Ceiling,” Office of Rep. Peter Welch, 4/18/2011)