The U.S. and Europe compared.
Simon Johnston takes the measure of Europe and America:
If Europe and the world now experience a growth miracle, these debt problems will recede in importance â?? because solvency is all about debt burdens relative to GDP. But if near term growth is not strong â?? as seems increasingly likely â?? market participants will soon resume their contemplation of European dominoes.In contrast, the United States has a simple fiscal problem â?? as discussed in my testimony to the House Ways and Means Committee this week. Government debt surged from 2008, not due to Greek-style profligacy but rather due to Irish-style banking disaster. When credit collapses, so does revenue. As the economy recovers, revenue comes back.
The single most interesting point about todayâ??s â??debt ceilingâ? debate is that over the 10-year forecast horizon that frames for the entire discussion, there is simply no fiscal problem by any conventional definition. In 2021, the US will likely have a small primary surplus at the federal level â?? meaning that the budget, before interest payments, will no longer be in deficit.
The really bad budget numbers for the US come after 2021 â?? but these are not the focus of anyoneâ??s current proposals on Capitol Hill.
