U.S. red ink flirts with crisis, panel warns

A bipartisan commission of fiscal analysts warned Monday that the U.S. public debt is piling up so rapidly that it threatens to plunge the nation into crisis if Congress and the White House do not reverse course within two years.

In the past year alone, the U.S. debt level soared from 41 percent of gross domestic product (GDP) to 53 percent, said the report by the Peterson-Pew Commission on Budget Reform, prepared in cooperation with the Committee for a Responsible Federal Budget.

The group comprises former members of Congress, including co-chairmen Bill Frenzel, Tim Penny and Charlie Stenholm, as well as former heads of the Office of Management and Budget, the Congressional Budget Office, the Government Accountability Office and other fiscal analysts.

The group said the debt is projected to rise steadily, reaching 85 percent of GDP by 2018, 100 percent by 2022 and 200 percent in 2038.

“However, before the debt reached such high levels, the United States would almost certainly experience a debt-driven crisis — something previously viewed as almost unfathomable in the world’s largest economy,” the commission concluded in its report, “Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt.”

Worries about the debt also could create political problems for the governing Democrats before any economic crisis emerges.

A Gallup Poll conducted last month found that just 31 percent of Americans think President Obama is able to control federal spending, down from 52 percent one a year ago.

Those doubts were buttressed by reports Monday that Democratic leaders in Congress are moving to raise the $12.1 trillion debt ceiling by $1.8 trillion to cover increased federal borrowing.

If the White House doesn’t begin taking big steps, congressional Democrats “will get killed in the next election,” said Alice Rivlin, the founding director of the Congressional Budget Office who headed the Office of Management and Budget (OMB) in the Clinton administration. Developing a credible debt-stabilization package with Congress would be “a preventive antidote to a landslide” by Republicans in the 2010 election, said Ms. Rivlin, a member of the group that issued the report.

A Senate Democrat on Monday called on Mr. Obama to veto the $1.1 trillion catchall spending bill Congress sent the White House this weekend, saying the president must “take the credit card away from the politicians who just want to spend, spend, spend.”

Sen. Evan Bayh of Indiana said that Mr. Obama didn’t create the spending crisis, but he challenged the president to clean it up.

“I would hope the president would veto this bill,” he said. “Its bad for our country’s finances. It’s bad for our children because we are going deeper into debt to China. It sets a terrible example by showing that politicians are totally out of touch with the sacrifices middle-class Americans are making.”

The Peterson-Pew report warned that “a loss of confidence by international creditors could precipitate a financial crisis.” It also declared that “the growing debt will jeopardize the American living standard and U.S. economic leadership.”

The public debt peaked at 109 percent of GDP at the end of World War II. As recently as 1981, it had declined to 26 percent of GDP.

The annual budget deficit, which hit a postwar peak of 9.9 percent of GDP in fiscal 2009, will fall below 6 percent over the next five years but then rise above 16 percent in 2038, according to the commission’s fiscal base line.

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