After Fiscal Cliff Comes Fiscal Avalanche, Rejection of U.S. Debt

While Washington is preoccupied with the so-called fiscal cliff, little attention has been given to the fiscal avalanche that will occur if we continue down an unsustainable, long-term path, causing markets to turn sour on U.S. debt and leading to a spike in interest rates.

Such a eurolike crisis would make the fiscal cliff look like a dip in the road. Unlike driving off a cliff, which you can see coming and make last-minute adjustments to avert, we cannot predict with any reasonable certainty when the avalanche will break. If it does, there will be little anyone can do to prevent its devastating effects.

No one knows just how long the United States can continue to accrue massive debts before lenders lose confidence. Delaying significant fiscal restraint for yet another year will send the wrong signal to financial markets and may serve as a tipping point that could lead to disastrous consequences for our economy.

If U.S. creditors decide that our debt is no longer the safest form of investment available, demand for Treasurys will drop, interest rates will rise and the cost of servicing our debt will begin to explode. Paying interest on our national debt will quickly crowd out spending on almost all other federal priorities. At that point, any deficit reduction undertaken by Washington — including the sorts of spending cuts or tax increases being discussed today — will be too little, too late.

The Congressional Budget Office projects that under the most likely policy scenario, in 30 years, net interest payments on the debt could total $3.8 trillion in today’s dollars. That is more than total government spending for 2011.

Read more from this article HERE.