Red Ink Watch: How Bad Is the Deficit?

" But let's get back to the top story the deficit. How bad is it and watch all the stakes. Next guest says the growing red ink is a very big deal -- joined by one of the most influential economist of the day. John Taylor is a professor at Stanford university and a fellow at the Hoover Institute professor welcome back to the program today to be here. So spell it out in a nutshell what is the danger posed by this deficit."

" The danger is that eventually interest rates will start to rise and inflation will start to rise and doesn't have to happen real soon to make you worry about it but it could. Make the recovery much less strong and then people would like so it's a big negative quite frankly you have said publicly that this is as big a threat to the financial system. As the sharp decline in the commercial real estate market. As in fact a systemic threat that could take down the entire financial system you want to spell on how far -- professor. Well I think systemic is the right word because it affects the whole economy. And comparing it with commercial real estate I think it is useful with people are worried about that that's a serious problem is a lot of of these mortgage backed securities commercial mortgage backed securities to have to be rolled over. And that's a concern but life was when the when the federal government is borrowing as you put out nine trillion extra. Raising our debt to GDP ratio. Of very high levels and then becomes unsustainable. That's also systemic might not occur right away. But might be a little bit more delay but it's something to be very concerned about right now yet you we can be concerned but there's a certain element of inevitability. About this. Because we can't do anything about it I mean this extra nine trillion on top of the eleven trillion we already -- You can't reverse that the policies are in place which will inevitably create that. All the policies can be changed of course that's that's one of the reasons the big concern just don't want to give up. Is that there's a huge amount of things that to can be done to control the growth of spending we've got the entitlement. Programs that Social Security reform news here here's a lot of things that can be done and actually should be done. Because it will hurt the economy -- murder country that are oppressing you just -- told him out some really radical stuff. I -- the stimulus plan that's in place could you really think seriously about reversing that counseling it. We gotta do health literally at a cost of a trillion and it always just gonna not do that's and that's radical stuff. Was that you healthcare proposals themselves are quite radical. So I think it depends what you mean by radical but I'd say we should be trying and and speaking now -- was. A welcome the opportunity to say we need to do these adjustments. And the stimulus package is actually not working out well quite frankly -- see very little impact people. Are not spending a lot more the other strong improvement in the economy happened do with investment recently that's why you're. You're mentioning the improvement in the markets. But I think ultimately to the point here isn't here the American people are speaking out there they're sick of the -- lots of sick of this. Huge increase in -- they want to control spending. It can be done it's we've done in the past and we should be doing it now can he can be a timeframe I think that's what our viewers walked on the opposing a dom without threat. We haven't really seen the impact yet I mean for interest rates we haven't gone up that much the dollar housing collapse we don't have inflation yet. Tell me when do we start to feel this threat. Oh I think you you begin to see it. By the end of this year into next year depending on the recovery and right now though there's something that can be done. Immediately. And that is to lay out a plan the administration could lay out a plan to bring. The budget deficit down say a substantially maybe even in the balance in. For five years lay out that plan now they're just projecting. Budget deficits of over a trillion. Dollars a year after year that's not a plan to improve things sites they like to see you plan laid out how they're going to do it. Jon tight a professor of economics at Stanford universe state we thank you very much for joining us have as professor coming and soon please. Thank you even more."