January 12th 2009
Quote Of The Day: Borrowing Blues Edition
“We are in the midst of a crisis caused by so many financial institutions borrowing too much money. Somehow, a critical mass of policy makers now believes that the correct response is for the U.S. government to borrow too much money.” – Kenneth Hassett
W
ith the budget deficit set to triple over the 2008 deficit – did you get that? Triple 2008? – is now the time spend another trillion on stimulus programs?
Kenneth Hassett of the American Enterprise Institute thinks it’s not such a great idea. Writing an op/ed for Bloomberg, he says of our drive to ever greater debt:
This year may establish a government-spending black hole with gravity strong enough to suck the U.S. economy over the event horizon. Such a spending path has two possible endgames. Neither is pretty.
The Federal Reserve could print enough money to accommodate all of that debt, in which case the dollar will collapse and the U.S. will be looking at a South-America-style run on its debt.
Or the U.S. government could get its fiscal act in order with higher taxes. For that to happen, income taxes would approximately have to double.
While advocates of Keynesian-style stimulus are correct that this economy is terrible enough to warrant dramatic action, it is hard to understand how such a fiscal path might help. So what if second-quarter gross domestic product blips up a little bit? What business is going to expand its operations with the mother of all tax hikes peeking over the horizon? If government spending provided such a wonderful boost to the economy, we would be in Nirvana already.
I’m not hearing a lot of OM-ing going on; do you? No, it’s not Nirvana.
Hassett also does a nice job of defining that very scary trillion number for us. The projected – he says way too conservatively – $1.7 trillion deficit is equal to the entire military budget of the entire globe … with $500 billion left over. Or this example:
Perhaps the most disturbing comparison is this one: When President George W. Bush was first elected, total federal government spending was about $1.7 trillion. In other words, the difference between federal outlays and federal revenue this year will be bigger than the entire government was as recently as 2000.
He suggests the proposal of senators Judd Gregg and Kent Conrad: Empower a commission to make the tough choices about future benefits and taxes to restore sanity to the U.S. budget outlook, and then to fast-track the commission’s recommendations to an up-or-down vote.
Fat chance we’ll see that with an FDR-chanelling messiah in the White House.
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January 12th, 2009 at 12:13 pm
We will perish of our own stupidity. One cannot spend one’s way out of debt. Period.
We are headed to being just another failed EUropeon style failed state.