(I) U.S. Standard of Living Unsustainable Without Drastic Action, Former Top Govt. Accountant Says
President Obama might have signed the health-care reform bill into law last week, but the debate rages on. Opponents are gearing up for another attack on the the bill, partly because many of its provisions will be phased in slowly.
But the outrage over health-care really isn't about the actual bill, says our guest David Walker, former U.S. Comptroller General and head of the Government Accountability Office. "It was really more about the fact that government is out of touch and out of control."
Who will bail out America? A longtime budget hawk and currently CEO of the Peter G. Peterson Foundation, Walker says America's growing long-term debt is dangerously close to passing a "tipping point" that could trigger soaring interest rates and a plummeting dollar. In a worst case scenario, that could trigger a "global depression," he says, warning: "Nobody's going to bail out America."
With the U.S. facing $50 trillion in unfunded liabilities and around $62 trillion in total long-term debt, what worries Walker most is what happens after the recession dissipates, as detailed here. "I'm less concerned with the short-term deficits than I am the fact that we're not doing anything about those structural deficits that people used to call long-term," he says. "But the long-term is here."
What's ultimately at stake may be nothing short of Americans' faith in government and our standard of living. "There is a way forward. There is hope," Walker says. "But we need to actually make some tough choices."
(II) Bush Administration "the Least Fiscally Responsible in History," Budget Hawk Says
With the U.S. facing annual deficits of $1 trillion (or more) for the next decade, the recent sell-off in the bond market could be cause for alarm. Are foreigners finally calling Ben Bernanke's bluff? Is America the 'new Greece'? Have the deficit chickens finally come home to roost?
"Only time will tell," says David Walker, President and CEO of the Peter G. Peterson Foundation, which is devoted to promoting fiscal responsibility.
A longtime deficit hawk, Walker says a distinction must be made between short- and long-term deficits. The former is largely caused by the recession and will likely prove temporary, says the former U.S. Comptroller General and head of the Government Accountability Office.
"What threatens our future are the deficits that will exist when the economy is recovered, when unemployment is down, when wars are over and the crises are passed," Walker says. "That's what threatens the ship of state."
Specifically, Walker cites the $50 trillion in unfunded liabilities -- mostly for Social Security, Medicare and Medicaid -- which make up the bulk of America's roughly $62 trillion in long-term debt.
The hole is so gargantuan we cannot grow or inflate our way out, says Walker. He offers the following prescription, as detailed in a new book Comeback America:
- Re-impose tough budget controls
- Reform social insurance programs
- Constrain spending
- Reform the tax system in ways to raise revenue
"But the jury is out on the current administration," he says. "The numbers are shocking. Ultimately [Obama's] responsible now. He's got to come to grips with 'what are we going to do?' on his watch. We'll have to see what ends up happening."
(III) David Walker: Health Care Reform Savings "Misleading," But Not Double-Counted
Health care reform is now law but the arguing between Democrats and Republican over the costs is likely to last well into the November midterm elections.
The non-partisan Congressional Budget Office concluded the House version of the $940 billion bill passed into law would cut $138 billion off the federal deficit over the next 10 years. Republicans don't buy it and say the law will bankrupt the country.
Are the numbers to be trusted?
That's the focus of the accompanying clip with David Walker – arguably the most qualified person to answer these questions. As the former head of the Government Accountability Office and former Comptroller General of the United States Walker is intimately familiar with the fuzzy math lawmakers try to get away with.
One of the leading arguments over the reform bill was centered on the contention that it double counts some of the Medicare savings. Walker, the current CEO of the Peter G. Peterson Foundation, isn't sure it's double counting but is comfortable saying the savings the assumptions the CBO were forced to do their accounting from was misleading. "In reality the economic capacity of the United States is no different," he says.
Whether the health-care reform saves us money is unclear and will be determined by time, Walker contends. However, he's certain "government is bigger, entitlement programs have expanded, spending has increased and taxes are higher" as a result of the law.
Frankly, Walker believes there's bigger fish to fry before we get to the reform costs: There's "$50 trillion of unfunded promises -- of which $38 trillion or more is Medicare alone -- that we still don't know how we're going to keep,"
To better understand what that means for the average American family, Walker says, "the median household has a second or third mortgage equal to 10 times their income but no house backing that mortgage."
In a new book, Comeback America, Walker lays out a game plan to attack the problem, featuring these simple steps:
- Imposing a budget on how much the federal government will spend on health care
- Change our payment systems, our tax incentives and our taxpayer subsidies
- [Jan 6, 2010: David Walker CNBC January 2010 Video]
- [May 23, 2008: David Walker on CNBC this Morning]
- [Nov 23, 2008: David Walker in Fortune Magazine]
- [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]
[Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May]