tax policy center
publications
HOME | TAX TOPICS | NUMBERS | TAX FACTS | LIBRARY | BRIEFING BOOK | EVENTS | LEGISLATION | PRESS | TAXVOX Blog | About Us help get RSS feed

Advanced Search

by Topic:

by Author:

by Type:

by Date Range:
  From last wks

     

library

Countdown to Catastrophe

Leonard E. Burman

Published: April 26, 2010
Availability:
 PDF |  Printer-Friendly Version

Share:  Share on Facebook Share on Twitter Share on LinkedIn Share on Yahoo Buzz Share on Digg Share on Reddit

Reprinted with permission of Milken Institute Review

The text below is an excerpt from the complete document. Read the full report in PDF format.


Abstract

This article, written for a lay audience, discusses the causes and consequences of "catastrophic budget failure." When America's ballooning federal debt becomes unmanageable, we might simply refuse to honor our obligations, triggering a worldwide financial collapse and an economic downtown that would make the recent unpleasantness seem like a walk in the park. Or we might create enough money to pay back our creditors, domestic and foreign, triggering a hyperinflation reminiscent of failed states like the Weimar Republic in the 1930s (or, more recently, Zimbabwe) that would wipe out the savings of anyone caught holding wealth in dollars. The bottom line: while nobody knows exactly how or when catastrophic budget failure will play out, disaster is assured unless the federal government reins in its profligate ways.

This article draws heavily on more technical collaborative work with Jeffrey Rohaly, Joseph Rosenberg, and Katherine Lim of the Tax Policy Center, which will be published in The National Tax Journal.


Introduction

It?s 2030. China has just invaded Taiwan, and things do not look good for the island. Taiwan's longtime protector, the United States, has responded with passionate rhetoric and a barrage of UN Security Council resolutions which China has vetoed. But a military response is out of the question. China might counter by cutting off America's lifeline of foreign capital, tanking the dollar and crippling the economy. And, truth be told, it is not clear that the U.S. Navy, much diminished by decades of penny-pinching, could put up much of a fight against the world's pre-eminent superpower.

I'm not saying that's our future; there are alternative (though equally ugly) possibilities. When America's ballooning federal debt becomes unmanage able, we might simply refuse to honor our obligations, triggering a world wide financial collapse and an economic downturn that would make the recent unpleasantness seem like a walk in the park. Or we might create enough money to pay back our creditors, domestic and foreign, triggering a hyperinflation reminiscent of failed states like the Weimar Republic in the 1930s (or, more recently, Zimbabwe) that would wipe out the savings of any one caught holding wealth in dollars.

The bottom line here (and I do mean bottom): while nobody knows exactly how or when catastrophic budget failure will play out, disaster is assured unless the federal government reins in its profligate ways.

(End of excerpt. The entire report is available in PDF format.)