1. The Economic Crisis and the Fiscal Crisis: 2009 and Beyond Alan Auerbach and William Gale

5. What Happened? Three Phases: 1.The Economy 2.Policy 3.The Great Recession

7. What Happened? Three Phases: 1.The Economy 2.Policy 3.The Great Recession Increased deficit in 2009 due to weak economy plus ARRA, TARP, etc., the economy itself the more important factor

12. Implications of Recent Events and Policy Interventions

13. 1.No Worries About the Fed Having No Debt to Buy

14. 2.What is Debt? What is Fiscal Policy?

15. 3.The “Old-Fashioned” Solution Won’t Work

16. US federal debt:$ 12.3 trillion –Publicly held: 7.8 trillion –Bills + TIPS: 2.4 trillion Total federal fiscal imbalance: –Through 2085:$ 53 trillion (6.9% of GDP) –Through  : 126 trillion (8.7% of GDP) Entitlement programs are indexed either explicitly (Social Security) or implicitly (Medicare, Medicaid)

17. 4.Low Interest Rates: Not a Solution

18. Low Interest Rates Reduce rate of debt accumulation, so might delay financial crisis But low interest rates also reduce our ability to set aside the needed funds for really large future deficits Net impact of assuming zero interest rates for next 20 years is to increase the size of the fiscal gap, over the infinite horizon

19. 5.On the Spending Side, It’s Clear Where the Action Is

21. 6.Health Care Reform: Contributing to the Problem, or the Solution?

22. 7.Would Fiscal Rules Help?

23. Conclusions