Posts by Michael Granof
Posts about Michael Granof
In January, America found itself in the middle of yet another High Noon standoff over the national debt. Once again, the U.S. Treasury hit the limit on what it can legally borrow, and once again, Congress staged a showdown over increasing that limit. This time around, Congress voted to suspend the ceiling for only a few months, setting up another potential standoff for early summer. Businesses are concerned that these standoffs will continually stunt economic growth, prompting some experts to recommend eliminating the debt ceiling altogether.
In the latest episode in America’s deficit saga, a 12-member Congressional panel, nicknamed the “supercommittee,” is trying to slow down a runaway train: the national debt. It’s crafting a plan to trim at least $1.2 trillion, on a deadline that’s approaching faster than a speeding bullet. The plan is due before Thanksgiving. It’s a job that might require superpowers, say faculty at the McCombs School of Business: a superhuman grasp of economics combined with superhuman political skills. The committee has to tighten Uncle Sam’s belt without squeezing him into another recession, and do it in an atmosphere where compromise is treated like kryptonite.
Prof. Michael Granof analyzes the 2010 Financial Report of the U.S. Government and finds no good news.
Your doctor sounds the alarm: Your weight has hit the danger zone. You ask for a miracle drug that could slim you down overnight. His matter-of-fact reply: Eat less and exercise more. Like losing weight, the steps needed to deflate the federal deficit are not drastic, say faculty at the McCombs School of Business. The chief obstacle is not economic practicality but political willpower. “We’re a wealthy country with a solid central bank,” says Dean Thomas Gilligan. “We can work through this.” How much should America restrict its fiscal calorie intake? A reasonable target, say many economists, is to maintain publicly-held national debt at its current 62 percent of Gross Domestic Product. With no change in current policies, that number would top 350 percent in 75 years. To bridge that gap, calculates the Treasury Department, will take spending cuts and revenue hikes that add up to 2.4 percent of GDP. That would amount to $360 billion this year, and larger amounts as the economy grows. “That’s what it needs to add up to immediately, and it needs to be lasting,” says McCombs senior lecturer Sandy Leeds. “If we can keep our debt-to-GDP ratio constant over 75 years, it would be an amazing feat.”
Sometime this May, America will max out its credit card. That's when the national debt is projected to hit the $14.3 trillion allowed under current law. Unlike you and me, the federal government gets to raise its own credit limit, and Congress has been playing a high-stakes game of chicken over whether to allow it. But to Michael Granof, accounting professor at the McCombs School of Business, that $14.3 trillion is just a drop in a bucket of red ink. “The real debt,” he says, “is that number on the balance sheet — plus $43 trillion.” How big are our federal deficit and our national debt, really? Economists use more than one yardstick to measure them. The federal budget uses the shortest yardstick, but to Granof, it’s not necessarily the most accurate one.