The U.S. government is going to need to enact two rounds of painful austerity measures if it wants to avoid and S&P downgrade, according to Citi Managing Director Steven Wieting.
Wieting says that it’s rising healthcare costs that will prevent one round from being enough. In fact, he believes it is “inevitable” that debt to GDP will rise as a result of the ageing U.S. population.
From Steven Wieting:
According to quite reasonable estimates from the International Monetary Fund, the U.S. is on course to have the world’s largest federal healthcare system relative to GDP in under 15 years. Yet that system would cover only those aged-65+ and a segment of the lower income population, or roughly 1/3rd of the public. In most other advanced countries, lower spending levels provide limited, rationed, but fairly universal access to healthcare for all. Strikingly, the U.S. healthcare contribution to fiscal deficits is more severe than Japan’s despite far easier demographic challenges for the U.S.
The two rounds would be a combination of both Democratic and Republican austerity proposals, specifically Republican plans to raise the age for benefits and Democratic plans to cut benefits. Wieting also argues that the Republicans can’t cut taxes if they’re serious about balancing the budget, and Democrats can’t exempt entitlement programs from their debt “failsafe trigger.”
And cutting benefits cannot be seen as a movement against saving lives.
From Steven Wieting:
Avoiding or failing to avoid a fiscal crisis provides a nearly binary difference in the long-term outlook for the U.S. That difference may come down to U.S. attitudes toward healthcare outlays and respect for shared resources. One easily can imagine a public consensus to support deficit spending “in order to save lives.” But limitless deficit spending, even to save lives, is not possible. Universal mortality is part of the human condition, not a medical catastrophe that any amount of spending can avoid. Unfunded spending for the terminally ill, far in excess of international norms, with costs passed on to other healthcare consumers seems an important element of the long list of factors making U.S. healthcare costs the highest by far in the world.
Note the worrying demographic trend that is only going to make the U.S. debt crisis worse.