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America’s Fiscal Crisis

The Congressional Budget Office projects that America’s 2011 deficit will be $1.5 trillion, or 9.8% of GDP, and debt held by the public in the 2011 fiscal year will approach 70% of GDP.
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How close is America to facing a bond market crisis? Should drastic cuts to the budget be made now? Over what horizon should they extend? And what balance between tax increases and spending cuts should be struck? Or is the entire underlying premise of the question mistaken? Can America count on a return to growth to solve most of its near-term budget problems? And how should other economies approach America’s fiscal morass? Boston University economics professor Laurence Kotlikoff says America is cooking the books and that the financial situation is worse than the government lets on.

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Depending on which economist has the stage, America’s economy is either experiencing slow growth, remains dismally flat, or stands ready to fall off a cliff. Nearly everyone agrees that the economy needs help. The nation’s debt and budget deficits are reaching, or have already reached, fiscal crisis levels. Historians will analyze someday how close the United States came during this period to reaching the economic breaking point as a nation. Truth be told, some fear that the breaking point may still occur.
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