Monitor Breakfast Q&A: Congressional Budget Office Director Douglas Elmendorf

Congressional Budget Office Director Douglas Elmendorf discussed the "dangerous gamble" of a potential American default on its debt ceiling, the heavy impact of even slight shifts upward in US borrowing costs and his belief that a "great deal of the pain of this downturn lies in front of us still" at a June 14 Monitor breakfast.

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    Congressional Budget Office Director Douglas Elmendorf addresses reporters at a Christian Science Monitor Breakfast on June 14 in Washington, D.C. Elmendorf argued the U.S. is taking a "dangerous gamble" with discussing a failure to raise its debt ceiling and that the economy still faces more pain to come.
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Congressional Budget Office Director Douglas Elmendorf is in charge of providing lawmakers with objective, impartial analyses of budget and economic issues. The Harvard-trained economist also has worked at the Council of Economic Advisors and the Federal Reserve Board. He was guest speaker at the June 14 Monitor breakfast in Washington. Below is a Q&A from that event.

US economic outlook:

“The country faces very serious economic and budget challenges. These challenges can be solved, but they can’t be solved easily.”

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Consequences of the US economy operating below its potential:

“A great deal of the pain of this downturn lies in front of us still.”

How today’s budget climate is different from that of earlier days:

“The biggest issue ... to understand is that we cannot repeat the budget past, in the sense that we cannot have revenues at the same share of GDP [gross domestic product], and have the same sorts of programs for older Americans, and run the rest of the government in the same way.... We can’t do all three of those things because there are a lot more older Americans, and health care is much more expensive relative to the rest of the economy.”

Danger of a US government default on its debts:

“The government defaulting on its obligations would be a dangerous gamble ... because any government that has borrowed as much as ours has borrowed and will need to borrow as much as ours will need to borrow cannot take the views of its creditors lightly.”

Cost of any eroded investor confidence in US government securities:

“Even a small increase in the perceived risk of Treasury securities would be very expensive for the country. If Treasury rates moved up by just [0.1 percent] over the next decade, that would add $130 billion to interest payments over the decade.”

Impact of a default by the Greek government on its debt:

“The risk to the United States is principally through financial contagion.... The probability of a sovereign debt crisis in Europe having a big effect on the US economy is small. But it is difficult to rule out, given the interconnections in the financial system and the difficulty in being able to trace those interconnections.”

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