Putting the Brakes on the Gravy Train
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Last November, voters sent a clear message to Washington: Our government is too big and growing too fast. We have more government than we can afford and more government than we want. The national debt is unsustainable and, if left unaddressed, will lead to economic collapse.
The Congressional Budget Office expects federal debt to equal 62% of GDP in 2010, up from 40% in 2008. Factoring in the government’s true obligations—Social Security, Medicare, and Medicaid—and not just the sale of U.S. Treasuries, the national debt currently is almost 100% the size of our economy.
There are many consequences to mounting debt. As interest rates rise, financing the debt becomes more costly. We could quickly get caught up in an upward spiral of higher interest rates and debt servicing costs. Monetizing the debt—as the Fed is starting to do—can also lead to inflation and higher interest rates and, consequently, higher debt. In addition, high debt levels lead to misallocation of resources, which can cause lower productivity growth and lower standards of living.
If debt reaches crisis proportions, Congress could be compelled to make immediate draconian cuts in all spending programs, which could lead to another severe recession. Debt holders could lose confidence in the dollar as a reserve currency and subsequently dump our debt, causing a currency crisis.
Confronting the nation’s debt crisis requires robust economic growth and job creation, reduced spending, increased revenues, and entitlement and tax reform.
Separate commissions have put forward blueprints for rebalancing the federal budget. Their ideas deserve a full public discussion and debate. While the U.S. Chamber does not agree with everything in these proposals, we recognize that balancing the budget is a national priority and will require sacrifice from all. We must avoid the in-the-box thinking that has prevented any real progress thus far. Falling back on comfortable and familiar arguments will do nothing to move the ball forward.