Obama inherited a fiscal disaster. Now what?
Without swift action, gargantuan debts could soon destroy Uncle Sam's credit rating.
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The truth hurts. But the real news is that the 2008 fiscal gap was more than $3 trillion and worsening fast due to our entitlement problems. Hardly any reporter covered this story. And this was before the cost of economic recovery or shoring up our financial system. Including these costs, the 2009 fiscal gap could approach $5 trillion.Skip to next paragraph
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Whether due to tradition, inertia, or ignorance, Uncle Sam refuses to weigh himself on an honest scale. It's a decision with serious consequences.
Two leading credit rating agencies on Wall Street, Standard & Poor's and Moody's, projected – while Bush was still president – that the US Treasury bond could lose its AAA rating as soon as 2012. If we allow this projection to come true, the US will have plummeted from the prospect of being debt-free to destroying its credit rating in only eight years.
Standard & Poor's was unusually specific in its projection. It said that the US could have the same credit rating as Estonia or Greece by 2015, Poland or Mexico by 2020, and Panama by 2025. Panama's debt is below investment grade; it's junk. How can the greatest nation in the world be reduced to such comparisons? The answer is eight years of financial mismanagement.
The first rule of holes is to stop digging. President Bush not only failed to stop digging, he used a power shovel. The giant task of the Obama administration will be to build a tall enough ladder to help us climb out. This is a job that will take many years – perhaps decades.
The construction project starts Feb. 23, when Obama is expected to host a fiscal responsibility summit at the White House. His first challenge will be to explain the massive scope of the problem; next, he will have to convince Americans that he wants to preserve and strengthen the social safety net, not weaken it, as naysayers claim. Finally, Republicans and Democrats will have to agree to share some sacrifice. Nothing is off-limits: taxes and spending must both be on the table.
I have proposed forming a bipartisan fiscal reform commission that would hold public meetings around the country and then propose a framework for tax and entitlement reform. The chief virtue of the commission approach is that it starts the clock: If Congress, or the White House, has another solution, it will be considered alongside the commission's proposal.
What matters is that we solve these problems, which grow worse every day. All good-faith ideas must be welcomed.