Congressional Agreement: “Just Keep Spending, We Can Always Borrow the Difference”

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In the midst of one of the greatest economic crises in American history, the government has decided that the most prudent course of action is continued deficit spending, according to The New York Times.

With bailouts and liquidity infusions totaling nearly $1 trillion, the United States government has somehow dug itself further into an already gigantic hole. Unsound economic policies set us up for this calamity, and the assumption is that more unsound policies will get us out. The massive spending increases are cheap now; but as any sub-prime mortgage borrower will tell you, what was inexpensive yesterday may be back-breaking tomorrow.

In order to finance its political extravagances, the United States government has opted to borrow money from willing overseas lenders. Japan, China, the United Kingdom, Brazil and Russia to name just a handful, have been called upon to lend our government hundreds of billions of dollars with the promise that the debt will be repaid. So long as the rest of the world is willing to service our debt without calling it in, the government can continue on its current pace.

This was the same bad logic that brought on the collapse of the housing market. Assuming that lending practices will remain favorable into the distant future is a recipe for fiscal suicide. The national debt has ballooned to historic proportions with no end in sight. Congressional lawmakers are now considering a second stimulus package – after the first petered-out unsucessfully – apparently believing that a newer, bigger package will somehow succeed when the previous attempt failed.

All of these new and expensive policies come on top of the government's sunken costs in the “War on Terrorism” (an estimated $11 billion each month), and the monumental expenses associated with baby-boomer Medicare, Medicaid and Social Security needs. The government has been forced to spend more on entitlement packages like unemployment relief and food stamps as companies continue to layoff workers and cut wages. All of these programs are now being funded by overseas investors willing to buy Treasury bonds.

“The next president will inherit a fiscal and economic mess of historic proportions,” said Senator Kent Conrad, Democrat of North Dakota and chairman of the Senate Budget Committee. “It will take years to dig our way out.”

For some reason, there is very little political momentum to right this obvious irresponsibility. At some point the government and the people will have to pay the piper. We must either cut spending, increase taxes, or both. Instituting import tariffs would also go a long way in raising revenue, but our government's absolute adherence to “free-trade” is a disastrous policy that seems to be ingrained in stone.

This country cannot sit idly by as politicians whimsically spend our nation into oblivion. Instead of spending money on failing financial institutions, we could direct our money into sorely underfunded educational programs, or rebuild the industrial base lost to NAFTA and the WTO. We could place regulations on commodities exchanges and international trade which would reign in corruption and produce revenue via taxes and tariffs. We could buck up and pay higher income taxes – our national growth was highest during times with the most taxation – or we could act responsibly and stop spending beyond our means. There are numerous rational courses of action that the government could pursue. Instead, we are left with deficit spending and foreign financing.

Source The New York Times

Like water rushing over a river's banks, the federal government's rapidly mounting expenses are overwhelming the federal budget and increasing an already swollen deficit. ... Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes. But while the borrowing is relatively inexpensive for the government in a weak economy, the cost will become a bigger burden as growth returns and interest rates rise. ... Higher rates in turn would increase the cost of financing the deficit, and there would probably be more pressure to reduce it through cuts in spending. That happened in the late 1980s, as Congress and the White House coped with the swollen Reagan deficits.

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