LAWRENCE B. LINDSEY gives three reasons the deficit is worse than the Obama administration admits. The first is that . . .
. . . official debt projections are based on unrealistically low interest rates.
[The] average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
Over ten years, normal interest rates would cost an additional $4.9 trillion, Mr. Lindsey says, wiping out any gains from the $2 trillion conservatives hope to chop from current spending levels.
Though he does not explore the point in detail, Mr. Lindsey notes that Federal Reserve interest-rate policy is now hostage to the fiscal policy of the Treasury. Want a stronger dollar? Want interest rates that would fairly compensate savers for their financial prudence? No can do. They would wreck the federal budget.
The second reason for concern is that official growth forecasts are much higher than what the academic consensus believes we should expect after a financial crisis.
The Obama administration projects growth in excess of 4 percent for 2012 through 2014, Mr. Lindsey writes. But the consensus is that we can expect only about 2.5 percent. If that lower number is correct:
we will miss the president's forecast by a cumulative 5.2 percentage points and -- using the numbers . . . in his budget -- incur additional debt of $4 trillion. That is the equivalent of all the 10-year savings in Congressman Paul Ryan's budget . . . or in the Bowles-Simpson budget plan.
Third, it is increasingly clear that the long-run cost estimates of ObamaCare were well short of the mark because of the incentive that employers will have under that plan to end private coverage and put employees on the public system. . . .
One survey says 30 percent of employers will likely dump their health plans, Mr. Lindsey says.
If this survey proves correct, the extra bill for taxpayers would be roughly $74 billion in 2014 rising to $85 billion in 2019 . . . .
Underestimating the long-term budget situation is an old game in Washington. But never have the numbers been this large.
There is no way to raise taxes enough to cover these problems. The tax-the-rich proposals of the Obama administration raise [read would raise] about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast. The whole $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years.
His conclusion is a chilling one: Bondholders should be under no illusions about whether the current system is sustainable.
Under current government policies and projections, they should be far more worried about a return of their principal in 10 years than about any short-term delay in a coupon payment in August.
(Lawrence B. Lindsey, "The Deficit is Worse Than We Think," Wall Street Journal (wsj.com), June 28, 2011 (emphasis added))
The Obama administration either doesn't understand these things or, I suspect, doesn't care.
If even one of Mr. Lindsey's what-ifs should eventuate, America would face potential fiscal catastrophe.
If, as is more likely, all three ripen into reality, the president's fundamental transformation of America into something else -- in this case, Greece -- would be complete.
Where are the adults? Certainly not in the White House.
Stephen Green (Vodkapundit) sees only three outs: "Cut the budget to the bone, hyperinflate away our debts, or default." The first won't happen, he says. The second would be economically and socially ruinous. Leaving the third, as horrific as it would be, as the least bad.
Glenn Reynolds (Instapundit) is pushing a delicious new label for those who refuse to admit we have a problem: "Economic Reality Deniers."