The IMF's First Deputy Managing Director, John Lipsky, told an audience that the developed nations, including the United States, should begin fiscal consolidation in 2011. Given the magnitude of the fiscal challenges facing those states and the long-term imbalances facing a number of them, he specifically cited the need for a combination of spending reductions, tax hikes, and an increase in the retirement age. Failure to do so, he warned, could slice up to a half percentage point from those countries' annual growth.
A half percentage point might not sound like much, but the compounding effect would be substantial over time. For example, if the U.S. economy grew at a real annual rate of 2.0% vs. 2.5%, it would be $794 billion smaller than it would have been at a 2.5% yearly growth rate after 10 years. After 20 years, it would be $1.98 trillion smaller than it would have been at a 2.5% annual growth rate.
The New York Times reported:
http://www.nytimes.com/2010/03/22/bu...bal/22imf.htmlFor the United States, “a higher public savings rate will be required to ensure long-term fiscal sustainability,” Mr. Lipsky said...
“Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,” Mr. Lipsky said. Maintaining public debt at postcrisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually, compared with projections before the crisis, he said.