A deficit of historic proportions

Is the U.S. headed for a major economic crisis on the scale of Argentina's in 2001?

Published May 20, 2005 8:02PM (EDT)

The U.S. has already spent $320 billion on all military operations since September 11, 2001, according to a Congressional Research Service analysis -- nearly as much as the $350 billion (adjusted for inflation) spent on the Korean war effort. The fighting is "lasting longer, and is more intense, and the cost to keep troops in the theater of operations is proving to be much greater than anyone anticipated," wrote Democratic Rep. John Spratt of South Carolina in a recent report, according to the Christian Science Monitor. Not only does the war in Iraq grow more expensive by the month, the cost of materials and maintenance increases the longer that the fighting is sustained. How high will the cost go? According to the Congressional Budget Office, possibly as high as $600 billion by 2010, if operations continue at the same rate.

Needless to say, war expenses have added several bricks to an already huge pile of federal debt, now estimated at $45 trillion by David Walker, the Comptroller General. At a meeting on Tuesday, Walker and economic analysts from the Heritage Foundation and the Brookings Institute agreed that drastic reductions in spending are required to avert a major economic crisis, one on the scale of Argentina's collapse in 2001. By 2040, the only way to balance the budget, they concluded, would be to reduce federal spending by 60 percent, mostly from programs such as Medicare and Social Security -- or to increase taxes to more than two times the present rate.

Neither notion is politically popular, and they're not likely to be in 2040, either. But the big spending continues: The White House asked for and received its third emergency wartime spending bill last week, for $82 billion.

Walker said it wasn't just the administration that needed a reality check. "The American people have to understand where we are and where we're headed," he said. Without changing course, Walker said, a meltdown is imminent. "No republic in the history of the world lasted more than 300 years. Eventually, the crunch comes."

By Julia Scott

San Francisco-based freelance journalist Julia Scott writes about water and energy issues for various publications. She also covers the environment for Bay Area News Group, a chain of newspapers in Northern California.

MORE FROM Julia Scott

Related Topics ------------------------------------------

Federal Deficit War Room