America does have a long-run fiscal problem, driven by the combination of rising health costs, an aging population, and the unwillingness to raise taxes to pay for the programs we already have. If we don’t come to grips with that problem, bad things will happen. But what happens to the deficit in the medium term is almost irrelevant to the question of whether our long-run finances will get under control.
Yet S&P (and others) obsess about those medium-term numbers, without ever explaining why. Maybe they think there’s some critical level of debt — but they don’t know that. Maybe they think that fiscal austerity over the next decade will somehow guarantee good behavior further out — but that didn’t work in the 1990s. Or maybe they’re just pulling stuff out of regions I can’t mention in the Times.
Paul Krugman, who has been remarkably prescient for several years now, from a blog item, The Arithmetic of Near-term Deficits and Debt.