I was going to write about how both sides on the debt ceiling debate were deceiving the American public but my old friend Larry Lindsey beat me to it. In his Wall Street Journal opinion piece "the deficit is worse than we think" (June 28) Larry points out that the numbers are cooked. First, an important question is what interest on the debt is being used to calculate how much interest is owed on the existing debt. The current rate is artificially low as a result of ramped up purchases of Treasurys by the Fed. If the Fed comes to its senses and conducts a more rational policy, interest rates will rise. Larry points out that if the rate goes up to 5.7 percent which is the average over the past 20 years, the deficit rises by $420 billion in 2014. Second, the revenue projections are based on economic growth forecasts put together by Rosie Scenario. The forecasts project growth rates in excess of 4 percent per annum even though we have been growing at half that. A one percent lower growth rate brings in $750 billion less in revenues PER YEAR! Third, Larry finally reiterates that the costs of Obamacare - like most government cost estimates - will be much higher than the political-based numbers foisted on the American public. Larry says be prepared for costs higher by $75 billion rising each year. I know it is too much to expect the administration to put forth more rational numbers but the republicans accepting the administration's numbers is inexcusable. All this means that whatever "solution" is decided upon by the congress and the president, the issue will have to be revisited after the 2012 election. Everyone loves to talk about the so-called "nonpartisan congressional budget office". I used to be a visiting scholar at CBO and why its called nonpartisan when its head is appointed by the house majority leader president pro tempore of the senate is beyond me. But John Boehner needs to make clear to the CBO chairman Doug Elmendorf that he expects realistic numbers rather than those that all of us know are wrong.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com