Smith Faculty Opinion Article

John Haslem By Dr. John A. Haslem, Professor Emeritus of Finance
 E-MAIL WEB SITE

The 30 Seconds Outlook
October 1, 2010

“If we are not careful---and less spendthrift—the U.S. Economy will be heading for a state of permanent recession.”
— Professor John B. Taylor, TheDailyBeast.com, July 20, 2010

Taylor along with other experts voice concerns about economic growth and deficit spending:

  1. The economy fell from 5.6% annual rate of growth in the fourth quarter of 2009 to 2.7% in the first quarter of 2010, and then to 2% in the second quarter.
  2. The economy needs a boost, but not another stimulus package.
  3. The economy’s growth is reduced by higher deficit spending and economic uncertainty in policies.
  4. Congressional Budget Office states the deficit will be 146% of GDP in the next 20 years, versus 30% in the 1960s.
  5. The International Monetary Fund states an increase in debt by 10% of GDP is associated with a decline in annual economic growth of 0.25%.
  6. The IMF states the increase in debt from 44% of GDP in 2008 to 62% of debt in 2010 is reducing annual growth by one-half percent; and the 84 percentage points increase in debt over the next 20 years will reduce annual growth another two percentage points---zero growth.
  7. Professors Rogoff and Reinhart (UMD) state annual economic growth is 2.6 percentage points higher for countries with debt below 30 percent of GDP than for countries with debt above 90 percent of GDP.
  8. Rogoff and Reinhart state the ballooning deficit makes future financial crises more likely.
  9. The CBO forecasts interest on the deficit will eventually exceed all government spending if the current deficit path continues.
  10. The unsustainable growth in entitlements is a major source of deficit growth.

John A. Haslem