An Urban's Rural View

Forget about the fiscal cliff we're speeding towards at the end of 2012. The cliff to worry about is years away.

At some point during the 2020s, the combination of a rapidly aging population and uncontrolled medical expenses will push us off a cliff far higher than today's. None of the fiscal-cliff proposals they're discussing in Washington, Boehner's or Obama's, scratch the surface of this problem.

When we get to this future cliff the government won't have the luxury of borrowing at low interest rates, as it does today. The deficit and debt problems will be even worse than today's projections because the interest burden will be much higher.

Early signs of investor skittishness are already apparent in the bond market. According to The Wall Street Journal (http://tiny.cc/…), foreign buyers of U.S. Treasuries are focusing on shorter maturities, which pose less risk. They've got more than 50% of their holdings in Treasuries expiring in four years or less and only 5% in 10-year and longer paper.

This is especially worrisome because Uncle Sam is increasingly dependent on the kindness of foreigners. The Journal says their holdings have risen to the equivalent of 34.5% of U.S. GDP, up from 12% in 2003.

To avoid going over this much more fearsome cliff will require getting medical-care costs under control. It will also require economic growth. Unfortunately, there's nothing in Washington's performance in this-year's fiscal drama that inspires confidence that the future cliff can be avoided.

But, oh yes, they'll take the $23 billion or $34 billion or whatever new figure they come up with out of the farm bill at some point, thank you.

Urban Lehner can be reached at urbanity@hotmail.com

© Copyright 2012 DTN/The Progressive Farmer. All rights reserved.