House Speaker John Boehner (R-OH) sent a memo to his House Republican colleagues Thursday touting supposed successes the GOP has had this year, and he doing so he urged his caucus to continue their attempts to stave off a debt crisis economists say does not exist.

Boehner’s memo argues that Republicans have been successful in putting pressure on Democrats and President Obama to address the nation’s “soaring debt.” It then goes on to outline areas where the country is still struggling, with these two statements listed first:

The president hasn’t succeeded in getting his additional tax hikes – but the economy still isn’t growing as it should be growing.

The federal bureaucracy is spending less than it otherwise would – but the national debt continues to grow, crowding out investment and eroding confidence needed to support growth.

Those statements are intertwined more than Boehner realizes, since it is his party’s focus on the debt that is holding back the economy’s ability to grow “as it should be growing.” Government spending has plateaued in recent years because Washington has undertaken deep deficit reduction efforts, and spending on domestic programs will be at lower levels this year than it was in 2007, before the Great Recession began. Government spending typically drives economic recoveries, but this time it is actively hindering the recovery because of the budget cuts that have already been enacted.

Meanwhile, Boehner and Republicans like Rep. Paul Ryan (R-WI) continue to ignore those facts, arguing instead that debt is “crowding out investment…needed to support growth” and putting America on a path to a debt crisis. Economists, however, say neither of those statements is true. “The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” one told Bloomberg last week, with others adding that the U.S. faced little-to-no threat of a debt crisis in the future.

What the U.S. has instead is an unemployment crisis, one that Boehner acknowledges when he states that “the economy still isn’t growing as it should be growing.” The problem is that Boehner and his Republican colleagues keep supporting policies that will ensure that America’s road to economic recovery is far longer than it should be.

Over the past three years, House Budget Committee Chairman Paul Ryan (R-WI) has repeatedly introduced budget resolutions that contain draconian spending cuts in an effort to stave off the debt crisis he says is right around the corner if it isn’t addressed immediately. Ryan’s plans, all three of which have passed the House of Representatives, would almost surely add to the debt instead of decreasing it, but his main view is that America’s current level of debt is weighing down the economy, a claim he repeated to Fox News’ Greta Van Susteren Thursday night.

“The debt is crushing our economy, it’s slowing us down, and it’s guaranteeing the next generation has a diminished future,” Ryan said. “And we believe we have a moral obligation to balance this budget to get a healthier economy and create jobs.”

The source of those claims is a paper by Carmen Reinhart and Kenneth Rogoff that shows that economies grow more slowly when their debt-to-GDP ratios are in excess of 90 percent. But as Bloomberg reports, there is no economic consensus around those findings, especially when it comes to large economies like the United States:

“The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” says Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia who oversees $12 billion. “It suffers from a mix-up of cause and effect: When weak economic conditions arise, it tends to encourage deficit spending, which is what has led to more U.S. debt being issued, and not the other way around.” [...]

“The Rogoff-Reinhart 90 percent is really quite a fragile number,” says Joseph Gagnon, a former economist in the Fed’s monetary affairs division. “There is no threshold like that for countries that have control of the currency they borrow in.”

Moreover, there is no evidence that the debt is threatening the United States in the short-term. Borrowing costs are at historic lows — as Bloomberg notes, the cost of paying off the debt is lower today than it was when Ronald Reagan was president and financial markets are “begging” the U.S. to borrow. Instead, there is plenty of evidence that the focus on debt and deficit reduction has slowed the economic recovery. Government spending has plateaued since the 2009 stimulus effort that kickstarted the recovery, so while government spending traditionally pulls the economy out of recessions, spending cuts hampered efforts to boost the economy this time.

Investments to help the economic recovery now would fuel growth that reduces deficits and, thus, improve America’s long-term debt outlook as well. The current crisis facing the U.S. isn’t a debt crisis, but rather an unemployment crisis that is being exacerbated by lawmakers who focus too much on the debt.

The arrival of budget season has brought debt panic back to the Beltway. But President Obama threw cold water on the matter last week, telling ABC’s George Stephanopoulos that the United States does not face “immediate crisis in terms of debt.” And this morning, House Speaker John Boehner (R-OH) essentially told ABC’s Martha Raddatz he agrees with Obama, calling the debt crisis “looming,” but not “immediate.”

“We do not have an immediate debt crisis,” Boehner said on ABC News’s “This Week With George Stephanopoulos.” “But we all know that we have one looming. And we have — one looming — because we have entitlement programs that are not sustainable in their current form. They’re gonna go bankrupt.” [...]

“[President Obama's] point, as he went on to say in that interview, is that we don’t — we don’t really need to do anything at this point. And I would argue that we do need to do something,” said the House speaker.

Debt is already projected to remain at or below its current share of the economy for the next decade, and it’s good that Boehner is standing in agreement with the president on that point.

Unfortunately, the budget the House Republicans just released does not reflect this realization. It cuts all spending that isn’t Medicare, Social Security, or the military down to near-historic lows over the next ten years. America’s economy remains in the doldrums, leaving the unemployment rate at 7.7 percent (it has never been that high for that long since the Great Depression) and all the real-world evidence we have indicates that austerity in depressions cripples economic growth. If everyone agrees the debt crisis is not immediate, then job growth and economic revival should be topping deficit reduction on the country’s list of priorities.

Nor is there a great deal of evidence to back up Boehner’s distinction between an “immediate” and “looming” debt crisis. The long-term projections of mounting debt he and other D.C. lawmakers rely on are in fact riddled with dramatic assumptions and uncertainties about the future behavior of both Congress and the economy.

Once again, the March budget season has arrived, and Rep. Paul Ryan (R-WI) has engineered another draconian fiscal vision for the House Republicans. The plan would radically remake Medicare, decimate Medicaid, grant a huge tax cut to the wealthy, and slash support for the poor, investments, and civic infrastructure.

Ryan and his cohorts justify these plans by insisting that America faces a “debt crisis,” that the deficits we’re currently running are too high, and that we must act immediately to fix these problems. Centrists and other “serious” pundits and lawmakers throughout Washington have bought this argument, if not all the details of Ryan’s specific solution, and they’ve scoffed at President Obama’s insistence that we don’t actually face a looming debt crisis. Here are the reasons Obama’s right, and they’re all wrong:

1. We don’t ever have to actually eliminate the debt: The United States ran up a huge debt burden in World War II. More importantly, in raw dollar terms, we never repaid that debt. We simply grew the economy so that the size of the debt fell in comparison. That’s what’s happening in graphs where the debt burden drops in the post-war years. That burden is measured as a ratio of debt-to-GDP, and in ratios the denominator matters as much as the numerator.

2. The budget doesn’t actually have to balance to reduce it: If we can keep deficits under a certain threshold every year, then economic growth will overtake it, meaning our debt-to-GDP ratio will either stay the same or even drop. For the immediate future, the economy looks set to grow by about 4 percent a year in nominal terms (that is, real growth plus inflation). If we can keep each year’s deficit to 4 percent or less of public debt already held, debt-to-GDP will stabilize. America can, in fact, run deficits in perpetuity.

3. The debt is already as balanced as it needs to be: Federal spending involves a host of programs called “stabilizers” — spending that automatically kicks in when the economy tanks, without any acts on the part of lawmakers, boosting GDP growth and helping Americans who have lost their jobs. These include unemployment insurance, food stamps, welfare, Medicaid, and many others. Tax revenues also naturally fall as unemployment rises.

The Congressional Budget office just released a report that stabilizers will add $422 billion to the deficit in 2013. That leaves $423 billion — out of the estimated $845 billion deficit for the year — that isn’t due to the automatic stabilizers. Publicly held U.S. debt is currently around $11.5 trillion, and $423 is less than 4 percent of that.

Take out the stabilizers, and the deficit is within the window necessary to stabilize the debt. And all we have to do to unwind the stabilizers is get the economy firing on all cylinders again. This holds true for about the next decade, before growth in Social Security, Medicare, and Medicaid finally begin to slowly overtake it. The country still has problems, but it has lots of time to sort them out.

4. The “debt crisis” is not a certainty: Paul Ryan may talk as if it is, but it’s merely a projection — one possible result if the CBO’s guesswork about the future proves accurate. The Center for American Progress recently dove into CBO’s methodology, and found that the projections build in a host of sometimes-dramatic assumptions about Congress’ future spending and taxation choices, as well as other factors that could very well not come to pass.

Beyond trying to predict future Congress’ policy preferences, much of the future debt is based on projections that health care costs will continue growing at their previous trend. But the whole point of health care reform is to alter that trend by altering health care markets. Obamacare may already be doing this. CBO’s projections for Medicare spending over the next decade dropped by $500 billion between 2010 and 2013, simply because health care cost growth unexpectedly slowed.

In fact, if that slowdown becomes the new norm, Medicare spending will stay essentially flat as a share of the economy from here on out. That doesn’t show up in CBO’s long-term projections because their methodology uses cost growth over the last two decades to predict future trends. (See page 60.) It’s literally within the realm of reasonable possibility that the long-term debt problem is already solved — all without lawmakers having to cut a dime.

5. We don’t know how much debt actually causes crisis: Ryan and others often cite a finding that economic growth slows as debt-to-GDP reaches 90 percent. But there’s a big correlation-causation problem with this. Remember the denominator: slowing GDP, regardless of debt, could raise debt-to-GDP just as much as higher debt could. And the countries that fit with the 90 percent threshold prediction also present an apples-to-oranges problem when compared to America. Britain, Japan, and France — advanced democracies like ours, with their own currency — shouldered debt levels far in excess of 90 precent over extended periods of time in the past. No debt crisis arrived.

In conclusion: the “debt crisis” is a mere phantom — only one of many possible futures, and far from a certainty. The interest America is paying on its debt is currently lower than it was in the 1990s, despite a lower debt-to-GDP ratio then. When inflation is factored in, current real interest rates on our debt are negative. Financial markets are willing to pay us to borrow from them.

Meanwhile, every dollar we cut — nay, every dollar we fail to borrow — is a dollar that isn’t going to shore up the safety net, to rebuild the country’s infrastructure, or to support struggling Americans while their livelihoods remain on the line. That we’re passing on this opportunity to repair our country, much less even considering the monstrosity that is the Ryan budget, really is absurd.

House Budget Committee Chairman Paul Ryan (R-WI) unveiled the third version of his budget this morning, and due to the demand of his party’s conservative base, this version supposedly achieves balance within 10 years, at least a decade faster than past versions would have theoretically achieved the same goal.

But just like past versions, this version will fail to actually achieve the balance Ryan claims. That’s because the budget only gets to a balanced level in 2023 because Ryan has assumed revenue and spending levels that his budget can’t actually match. Ryan’s budget provides more than $7 trillion in tax breaks to the wealthy and corporations without proposing specific ways to make up for that lost revenue, meaning his budget — the one he has touted as a plan to rein in Washington’s runaway deficits and debt — will fall short of his goals, as Center for American Progress Tax and Budget Policy Director Michael Linden explains:

Last year the Tax Policy Center estimated that these provisions would generate revenue equaling just 15.8 percent of GDP in 2022. Extrapolating to 2023 suggests that Rep. Ryan is missing about $840 billion of revenue in 2023 alone, and approximately $7 trillion over the entire 10-year period from 2014 through 2023. After accounting for the added interest costs from all of these unpaid-for tax cuts, Ryan’s budget would still be about $1.2 trillion in the red in 2023.

But it isn’t just fantasy revenue levels on which Ryan relies. He also is basing his budget on massive spending cuts that aren’t laid out in specific (and haven’t been in previous versions either) and aren’t realistic, given that they would take spending levels lower than they have ever been before. As Linden notes, Ryan’s budget would drop non-defense discretionary spending to just 2.1 percent of GDP, even though it has never totaled less than 3.2 percent of GDP since records began in 1962.

It’s for this reason that the Congressional Budget Office told Ryan it couldn’t give him a better long-term outlook for his budget — the only reason the nonpartisan office could judge the plan at all was because it applied the revenue and spending assumptions he provided. And because Ryan cuts so much revenue without a plausible way to make up for it, his plan to reduce the debt would likely add trillions of dollars to it instead.

Senate Minority Leader Mitch McConnell (R-KY) reiterated Sunday that the automatic budget cuts that began taking effect March 1 were “modest” cuts that would keep the United States from turning into the Western European countries that have spent the last four years battling high unemployment and repeat recessions.

“We have a $16 trillion national debt,” McConnell said. “Our debt is as big as our economy. That alone makes us look like a Western European country.”

European unemployment hit a new record last week, and the Eurozone re-entered recession in November. Spain and Greece both have unemployment rates above 25 percent, and even Germany, the continent’s stalwart economy, is now contracting. Those struggles have largely occurred because Europe has attempted to reduce debt and deficit levels too quickly instead of focusing on growing the economy.

The United States took a different path after the Great Recession, choosing stimulus instead, and it has so far fared better than Europe. But it is now pursuing the same austere path Europe chose, with sequestration’s automatic budget cuts threatening to damage the recovery the U.S. has already made. McConnell claimed that “spending has exploded,” but while government spending has helped lead past economic recoveries, it has plateaued in the last four years and largely failed to help this recovery.

The cuts McConnell called “modest” will likely only make that worse. The Congressional Budget Office projects that it will lead to reduced economic growth and 750,000 lost jobs, and other projections show that it may hinder growth enough to prevent actual deficit reduction. But when Crowley asked McConnell to address those projections, he refused, saying only, “We promised the American people we’d do this a year and a half ago.”

Between the new-and-improved Simpson-Bowles plan, Joe Scarborough’s feud with Paul Krugman, the relentless drumbeat of the entire Republican Party, and the media blitzkrieg launched by the billionaire-driven “Fix the Debt” campaign, one might think no serious and responsible American can ignore the unassailable truth: America faces a debt crisis, which we must act on immediately and decisively.

Well, not quite. The actual truth is that the debt everyone’s freaking out about does not exist.

Some of the debt certainly exists, like the roughly $11.6 trillion owed to foreign and private creditors. But that isn’t the debt anyone’s worried about. If we stopped adding to it tomorrow, the debt as it stands would pose essentially zero threat to the country’s fiscal health, as the ongoing growth of the economy would send our debt-to-GDP ratio dropping like a rock.

So the debt that’s got everyone worried is the part we haven’t yet incurred. And that debt, by definition, does not exist. It’s not a certainty, it’s merely a projection by the Congressional Budget Office. And trying to model how the federal budget, not to mention the entire American economy, will behave years or even decades in the future is a devilishly treacherous business.

For instance: one of Rep. Paul Ryan’s (R-WI) favorite talking points in 2011 was that the computer simulations CBO uses to model the economy crash when they attempt to account for the debt load in 2037. Imagine trying to model the 2011 economy in 1985. Things you’d never see coming include (among other things) the Internet, fracking, massive advances in computing power, the renewable energy boom, three wars, a massive recession, and Harry Potter. And predictions can be hard even over shorter time frames. In 1995, CBO predicted the deficit in 2000 would be well over $200 billion. We ran a surplus of $236 billion.

In fact, Ryan plastered dramatic graphs of debt going out 75 years onto everything in sight while stumping for his last budget. Forget predicting 2011 in 1985. That’s like predicting 2011 in 1940.
Read more