As I have said in other posts, the Roosevelt Institute is starting a project we are calling “The Next American Economy: Nation-Building for our own Nation.” I will be writing about aspects of the next American economy more and more. This is a small road sign on the impending fiscal crisis.
Moody’s has just reconfirmed the U.S. government AAA bond rating, but it also said, “In light of the muted recovery, discretionary fiscal adjustment is now the principal means of repairing the damage the global crisis has inflicted on government balance sheets. [ed. note: This is finance talk for saying we can’t grow our way out of the box we are in.] A key issue is whether governments are able and willing to implement such unprecedented adjustments.”
As my friend, Joe Minarik of the CED, has observed, Allan Greenspan backed the Bush tax cuts in 2001 because he felt we should get rid of the impending budget surplus in order to maintain a U.S. government bond market. He was worried there would be no risk free securities. So the combination of the tax cuts, the out of control spending in the second Bush term, the financial crisis, the steps we had to take to deal with the crisis have brought us to the point at which there are no risk free securities anyway. But we reached this point by making the Treasury bond risky — not a policy we want to continue to pursue.
Roosevelt Institute Senior Fellow and Braintruster Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team.