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The Globe and MailFor 220 years, through civil upheaval, global conflict and a depression, the United States largely kept its public debt under control.
But the world's largest economy may finally have met its match. In its bid to prevent the Great Recession from spiralling into a global depression, the U.S. government spent tens of billions rescuing financial institutions and automotive companies. In the process, the federal budget deficit swelled 220 per cent from 2008 to a record $1.6-trillion (U.S.).
The world's biggest economy has plenty of company: Seven of the members of the Group of 20 nations are on a trajectory that will leave them with debts bigger than 75 per cent of their economies by 2014, according to the International Monetary Fund.
... Consider this: If the U.S. government was to slip into neutral today, allowing Bush-era tax cuts to expire and inflation to push many of the middle class into higher tax brackets, the country's debt would climb to about 300 per cent of gross domestic product over the next seven decades, according to the Congressional Budget Office.
Tweak that forecast for the political and demographic reality – the extensions of many of those tax cuts and higher payments to doctors as the population ages – and the CBO's model predicts the debt-to-GDP ratio would approach an astonishing 800 per cent over the lifetime of an American born this year.
“Relative to the future, the debt runups associated with the Civil War, World War I, World War II, the Regan deficits, and the current fiscal stimulus are mere hiccups,” Troy Davig, an economist at the Federal Reserve Bank of Kansas City, and two co-authors from Indiana University write in a recent paper on the looming U.S. fiscal crunch.
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http://www.theglobeandmail.com/report-on-business/a-world-awash-in-debt/article1380944/