The IMF lauded the efforts of the U.S. government to reverse a move of the economy toward depression with stimulus spending and rapid changes in Fed policy. The risks to future slowing are not over because of ongoing government policy.

The IMF report cited the most severe near term risks. Its analysis pointed to “particular risks from a double dip in the housing market and spillovers if external financial conditions worsen.” The US, in other words, is not immune to problems in Europe.

The damning part of the report is the attitude IMF officials had toward the  resolve by the Federal government to cut programs that are politically unpopular to cut

Setting public debt on a sustainable path is a key macroeconomic challenge. Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP under staff’s economic assumptions, requiring revenue and expenditure measures. They urged the authorities to accompany the 2011 adjustment with a strong commitment to medium-term stabilization, perhaps including further entitlement reform.

The future of the US debt depends to a very large extent on the will of Congress and the Administration to cut a huge amount of  Federal expenses over the next several years. This will almost certainly require “entitlement reform”, in other words restrictions on the payouts of Medicare, Medicaid, and Social Security. Many of the President’s economic advisors have admitted that current plans for future federal government spending present a danger to reductions in deficits and some control over the national debt. The same concerns are echoed in Congress.

But in the case of deficit spending, there may be a will and not a way. Elected officials will likely be thrown out of office if they suggest changing Social Security payments, particularly because the population is aging and the old are becoming a larger part of the electorate. The US government cannot do what its citizens flatly object to.

Douglas A. McIntyre

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