US has to cut $20 trillion or face the crisis

Lawmakers in Washington have finally come to a compromise with the US debt crisis, but is their plan enough to save the American dollar?

“We need to do something much more massive than this,” says Laurence Kotlikoff, an economics professor from Boston University. Increasing the United States’ borrowing limit by only a few trillion won’t be enough to get the US back to business, says Kotlikoff, who adds that it is going to take an adjustment more in the ballpark of $20 trillion to save America.

Kotlikoff says that, in order to fully balance the budget, lawmaker need to be looking to achieve a generational balance by eliminating a fiscal gap. He says that the long-term expenditure obligations, compared to American tax revenues, creates a much larger fiscal gap that a slight increase in the debt ceiling won’t patch up.

“We are looking too short term. That’s part of the problem,” says Kotlikoff. “We need to have a long term fiscal plan here, and just trying to get these cash flows in balance is not really looking long term enough.”

While some politicians might think a slight increase will save America over the next few months, Kotlikoff says there is a simple fix that the country just isn’t considering. “We’re just balancing the wrong books. It’s that simple,” he says.

Is it too late to employ that fix? For starters, one doesn’t have to look much further than Kotlikoff’s newest book: Totally Screwed.

“There is no country in the world that can run a fiscal policy like this over the long run,” says Kotlikoff.