President Barack Obama is priming an Italian-style debt crisis in the U.S by encouraging massive deficits with no regard for their economic consequences, says Harvard economic historian Niall Ferguson.
"What has been characteristic of this administration is that it has never attempted to arrive at anything resembling a credible plan to restore the finances of this country to balance," Ferguson said at a question-and-answer session after delivering the Manhattan Institute's Wriston Lecture.
"The last time the Congressional Budget Office tried to project fiscal policy on the basis of current policy, what it showed was that the United States would never again this century run a balanced budget, that it would run a deficit every year until the projections peter out in the 2080s."
Southern European countries such as Greece and now Italy have run up such massive debts that they're teetering on default, forcing other European countries such as Germany and France to prop them up and protect the eurozone.
It happened there, and it could happen here.
"A year ago no one said it would happen to Italy. A year ago no one said it could happen to Spain. A year ago, 'oh, it was just a Greek problem.' And the big fairy story is that somehow the United States is special and the laws of fiscal arithmetic don't apply, you can run a trillion-dollar deficit every year for the rest of time."
U.S. policymakers, meanwhile, are working to tackle spending, with a congressional Super Committee at work trying to find ways to shave between $1.5 trillion off the country's deficits.
If it fails to do so by around Thanksgiving, Congress will automatically make $1.2 trillion in cuts already worked out — half from defense budgets and half from entitlement programs — as part of an August deal to steer the country away from default by lifting the government debt ceiling.
Republicans and Democrats often lock horns over ways to narrow deficits, with the former opposed to tax hikes and the latter opposing changes to entitlement programs like Medicare.
Compromise, however, may be in the air as some Republican are reportedly warming up to raising revenue, a euphemism for either hiking taxes or closing tax loopholes.
"The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts – and therein lies the core of an agreement," says Senate deputy majority leader Richard Durbin, an Illinois Democrat, the Christian Science Monitor reports.
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