19 now stands ready to replace the United States, so the loss of international peace and prosperity has the potential to be greater as America pulls back than when Britain did. Therefore, the world will be a more disorderly and dangerous place.”

# **III. Tools at Our Disposal**

## **_A balance sheet for the government_**

The above discussion raises one important question: how sustainable is the fiscal position of the United States and, therefore, how vulnerable is the global economic outlook to possible shifts in sentiment about the underlying strength of the U.S. public finances? According to the IMF the U.S. budget deficits in 2009 and 2010 have been well in the 1113 percent of GDP range, the highest since the end of World War II. Public debt levels have been on the rise, from some 55 percent of GDP in 2000 to 103 percent of GDP in 2012 and projected to remain in excess of 105 percent of GDP through 2018, higher than the highest debt levels registered soon after the end of the war. Indeed, the _Financial Report of the United States Government_ for 2012 projects public debt levels close to 300 percent of GDP by 2075 and 400 percent of GDP by 2090. Interest payments on the public debt would rise from 1.4 percent of GDP in 2012 to 5 percent in 2029 and 21 percent in 2087. No doubt in anticipation of the vertiginous rise in public debt the statutory ceiling on U.S. Federal debt was raised half a dozen times between July of 2008 and late 2013, from US$10.6 trillion to US$16.4 trillion.

There is a sense, however, in which the yearly budget and its financing provide only a limited perspective on the sustainability of the public finances. Economists have sought to extend their analysis by looking at the current primary fiscal balance—revenue minus expenditure, excluding interest payments—and asking whether, if maintained at that level, it would lead to an increase in the debt to GDP ratio. While this has proved useful, it remains an incomplete tool of analysis. As noted by Heller (2004), it does not say which parts of the budget are the more problematic ones, what is the fiscal balance that is best for the country in a long-run perspective and, perhaps more importantly, it does not take into account any possible future budgetary commitments that may bring pressure to bear on the budget, such as workers’ pension benefits due upon retirement. A consolidated government budget will typically record the social contributions made by workers during the current fiscal year, but the future pension liability that is attached to those contributions is not shown or otherwise recorded; often, these liabilities are much larger than existing levels of debt.

For this reason some governments have sought to prepare a balance sheet for the government, capturing past fiscal operations as reflected in the outstanding public debt as well as future liabilities reflecting binding expenditure commitments, such as pensions, health benefits, and the like. Governments have generally shied away from examining the public finances in this more comprehensive, longer-term perspective. One explanation is that they have found it difficult to make projections involving variables subject to some margins of uncertainty, such as future average life expectancies, forthcoming claims on public resources unrelated to demographic factors, as well as the likely evolution of tax policy. In addition, long-term projections are highly sensitive to alternative assumptions.