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“Huge Interest Rate Risk”: U.S. Flunks David Walker’s ‘Fiscal Fitness’ Test

It's fashionable these days to compare America to Greece, Portugal, Ireland and other debt-laden countries. Thanks to the combined efforts of Stanford and the Comeback America Initiative, there's now a quantitative analysis of America's ranking.

The bad news is America came in 28th out of the 34 nations ranked in the Sovereign Fiscal Responsibility Index, aka the "fiscal fitness test." (Go here for the full report.)

"We are not in a very good neighborhood," says David Walker, CEO of the Comeback America Initiative and former U.S. Comptroller General. "We need to move on up."

Citing our "deteriorating financial condition and the deficits that lie ahead," there's no way American can "grow itself out" of its fiscal predicament, Walker says. However, he believes improving our 'fiscal fitness' is doable, if America takes the following steps:

  • Impose tough budget controls.
  • Reform the social insurance contract to make it "solvent, sustainable and secure."
  • Cut defense and other spending without compromising national security.
  • Enact comprehensive tax reform to generate more revenue.

Unfortunately, the current budget debate in Washington is miles away from addressing Walker's solution, or related recommendations from the President's fiscal responsibility panel. (See: David Walker: Budget Debate "Like Arguing About the Bar Tab on the Titanic" )

Dan Gross and I discuss these issues with Walker in the accompanying video, where he also addresses the critical question: If America's fiscal status is so bad, why are Treasury yields still so relatively low.

"We are a temporary safe haven," Walker says.

Given the low average maturity of America's debt -- and greater international demand for our short- vs. long-term Treasuries — America faces "huge interest rate risk," he warns. Let's wake up: The U.S. is not exempt from the laws of prudent finance. You cannot expend trillions more than you make, charge it to the credit card and expect it to continue indefinitely without a day of reckoning."

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

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