Feldstein Says U.S. Can’t Grow Out of Deficit Crisis: Tom Keene

According to expert Martin Feldstein the US must return to a balanced budget before it can begin to lower the ratio of debt to GDP. He goes on to say that were not going to be able to do it with economic growth alone.

April 15, 2011, 3:11 PM EDT
By Allison Bennett and Tom Keene

April 15 (Bloomberg) -- The U.S. will need to return to a balanced budget before it can lower the ratio of debt to gross domestic product even as the economy and tax receipts rebound, according to Harvard University Professor Martin Feldstein.

“We’re not going to do it with economic growth, period,” said Feldstein in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “We’ve got to do the fiscal policy, the spending and tax revenue, stabilize the debt, and then growth can bring down the debt-to-GDP ratio.”

U.S. government debt is equal to about 94 percent of the $14.87 trillion economy, while outstanding tradable Treasury debt of $9.13 trillion as of March is about 61 percent of the U.S. economic output in 2010.

President Barack Obama vowed this week to cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases, setting the stage for a fight with congressional Republicans.

“We need to get back to budget balance the way they did after World War II, and we need to hold it there for 10 to 15 years,” said Feldstein, 71, who served as an economic adviser during the administration of President Ronald Reagan. “Then we finally get the debt-to-GDP ratio back to the 30 to 40 percent range we had until recently.”

The U.S. economy grew at a 3.1 percent annual rate in the fourth quarter after a 2.6 percent advance in the previous three months, revised figures from the Commerce Department showed on March 25.

--With assistance from Daniel Kruger in New York. Editors: Dennis Fitzgerald, Paul Cox

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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