Brian Easton: A Fiscal Fantasyland?

The May 4 issue of the London “Economist” headlined that ‘Governments are living in a fiscal fantasyland’. It focussed on the four biggest economies – the US, China, EU and Japan – although many smaller ones would also illustrate its proposition, that each was losing control of its fiscal position with rising government debt.

Each is a bit different, even if the rise is happening to all of them. Suppose the US Congress would resolve the current dispute over the debt ceiling. Even so ‘America’s budget deficit is set to balloon as its population ages, the cost of handouts swells and the government’s interest bill rises.’ The Economist forecasts that ‘deficits could reach around 7% of GDP a year by the end of this decade—shortfalls America has not seen outside of wars and economic slumps.’ Public debt will rise.