Record Federal Spending and Debt Threaten Economic Stability
Before the end of the year, the U.S. Senate is scheduled to vote on whether or not to raise the federal government’s nearly $12.1 trillion debt limit in order to pay for this year’s record deficits. This historic vote should give lawmakers in both parties pause about the state of America’s finances and the need to reign in spending. Unfortunately, it appears that President Obama and his Congressional allies are content to stick with “business as usual,” even if it means prolonging our recession and jeopardizing our long-term economic stability.
President Obama’s Fiscal Year 2009 budget deficit was a record $1.4 trillion, more than three times the all-time high set the previous year. Today, the deficit is 9.9 percent of America’s gross domestic product, the biggest slice of the economy since World War II. And according to the Obama Administration’s own Budget Director, the projected deficits from 2010-2019 will exceed $9 trillion.
This is unacceptable! We need to get America’s budget deficit under control for several reasons.
Every dollar that is borrowed today must be paid back by our children and grandchildren (with interest) decades from now. Our current policy of forcing future generations to pay for our spending is grossly irresponsible.
Second, the old excuse that deficit spending represents “money we owe to ourselves” no longer applies to today’s situation. In 1988, Americans owned 88% of the federal debt. Today, we own only 56%. The rest belongs to foreigners. And what nation owns the most U.S. debt? China, with $800 billion. Every day we are borrowing money from Beijing to keep our government running and sending the bill to Main Street, making us dependent on one of the most autocratic regimes on Earth. It is the very definition of recklessness. We can only speculate how the Administration’s future foreign policy decisions will be shaped by this unhealthy relationship.
The federal debt isn’t just an issue for the future; it harms our economy today. For starters, the explosion in government debt puts added pressure on the U.S. dollar. With the federal debt expected to double by 2019, global investors are growing increasingly worried about America’s ability to pay it back. They are concerned that the Obama Administration - in a bid to pay back the debt without raising taxes - will cheapen the value of the dollar by printing more dollars. This fear has already led to a series of unconfirmed reports that other nations led by China, Russia, and the Gulf oil states - are eager to replace the dollar as the means of global exchange.
Of course, one might ask: What is the direct impact of a weaker dollar on Texas families and businesses? While a weak dollar makes exports cheaper, it also makes imports more expensive. One of America’s most critical imports is energy. The steep increase in the price of oil from 2005 to 2008 was partly a result of “cheap dollar” policies. Looking ahead, a weaker dollar will almost certainly result in a new cycle of higher energy costs and inflation for many goods and services. Instead of a recession, America may find itself in the grips of a “stagflation” (recession plus inflation) - an event we haven’t experienced since the 1970s.
Instead of working to shrink government spending and debt, the Obama Administration has passed a $787 billion stimulus package and is now working to pass a health care reform bill that, when fully implemented, will cost $2.4 trillion in new spending. This is the economic equivalent of medical malpractice, and it must stop.
Rather than pressure Congress to raise the debt ceiling over $12.1 trillion, the Obama Administration should redirect unused stimulus money toward debt reduction or programs that will actually spur job growth. It’s still not too late for the President to show leadership, bring our economic house in order, and keep the American Dream alive for future generations.