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GAO Report: Dark Days Await Nation’s Economy

A new report from the GAO projects tough years ahead for the United States economy – the likes of which the nation has never seen.

According to the report, “While the drivers of the long-term fiscal outlook have not changed, the sense of urgency has. As the table below shows, many of the long-term challenges highlighted in past updates, including health care cost growth and the aging population, have already begun to affect the federal budget-in some cases sooner than previously estimated-and the pressures only grow in the coming decade.

It continues: “Social Security cash surpluses have served to reduce the unified budget deficit. However, CBO recently estimated that due to current economic conditions the program will run small temporary cash deficits for the next 4 years and then, similar to the Trustees estimates, run persistent cash deficits beginning in 2016. The fluctuation and eventual disappearance of the Social Security cash surplus will put additional pressure on the rest of the budget.”

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The Report also describes a grim outlook for the GDP: “The economic downturn and the federal government’s response continue to shape the near-term budget outlook. In fiscal year 2009 the overall federal deficit reached 9.9 percent of GDP-the largest since 1945, and the deficit is expected to decline only slightly in 2010.

While deficits are projected to decrease further as federal support for states and the financial sector wind down and the economy recovers, the increased debt and related interest costs will remain. Our long-term simulations show that absent policy changes the federal government faces an unsustainable growth in debt. Under our Alternative simulation, debt held by the public as a share of GDP could exceed the historical high reached in the aftermath of World War II by 2020 (see fig. 1)-10 years sooner than our simulation showed just 2 years ago.”

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