Recently, ten former chairmen of the President's Council of Economic Advisors, including Democrats and Republicans, wrote a joint letter sounding the alarm. They warned:
But with the U.S. running annual deficits of $1 trillion or more, many individual and national investors are growing increasingly concerned about the risk of not getting their money back. Would you continue to loan money to a friend or family member who had compulsive spending habits?
If people and foreign governments start doubting that they will get their money back, they will demand a greater return for their investment, meaning higher interest rates. When that happens, interest payments on the debt go up. This will have a ripple effect on the entire economy as interest rates for mortgages, car loans, student loans, business loans and credit cards are tied to the bond markets. This could lead to two negative outcomes.
As more and more money goes to interest payments, there is less and less money available for critical programs. By some estimates, interest payments alone on the debt will explode to more than $700 billion in the next few years.
At those levels, interest payments on the national debt will crowd out spending for Social Security, Medicare, roads, bridges and schools. It will also reduce the money we have available for national defense, and so the debt menace threatens our national security at a time of tremendous unrest around the world.
For rates to stay low there must be enough demand for our debt. But in recent years, U.S. spending has outstripped demand for American debt. So the Federal Reserve has stepped in and is buying Treasury bonds. To many, it seems laughable that one entity of the federal government is buying debt from another entity of the federal government, but that is exactly what is happening.
Just imagine a couple who are deeply in debt. Mr. Smith says to his wife, "We're in trouble and need to raise $100,000." Mrs. Smith says, "Okay, I'll loan you $100,000." Really? If Mrs. Smith had $100,000 they wouldn't be in trouble!
This is a charade, an accounting gimmick that, for the time being, is keeping interest rates low. But for how long? And as the Fed prints more money to buy more debt, it raises the specter of inflation, which would diminish the value of your money. By the way, the traditional "cure" for inflation has been higher interest rates to pull money out of the economy. It seems like a vicious cycle, doesn't it?
The solution is simple, but not necessarily easy. Like any family facing a budget shortfall, we must prioritize our spending on our limited resources and stop spending on things we don't need and can't afford. We must stop spending before America turns into Greece.
We must get the debt under control by spending less on government, which consumes more and more resources as it gets bigger and bigger. The more resources big government consumes through higher taxes, the less money you have to spend on your family, and the less money a small businessman has to invest in his company creating new jobs.
But to give you some idea of just how large government has become, consider this excerpt from today's Wall Street Journal:
Faced with a deficit of $1.5 trillion, Senate Democrats couldn't even agree to cut $61 billion from the budget. And they have the audacity to call these cuts "extreme" when the deficit is 25 times that amount!
If we fail to rein in federal spending, we are condemning our children and grandchildren to a dismal future of sky-high interest rates and crushing tax burdens. Those of you old enough to remember the "malaise days" and the misery index created by Jimmy Carter's left-wing policies should educate your college-age children and grandchildren.
There is a lot of talk right now about the prospect of a government shutdown. People are concerned about what will happen to their Social Security benefits, Medicare, Medicaid and other programs. But those programs are not threatened by Republican efforts to balance our budget. The real threat is continued deficit spending by Obama and his left-wing allies, which, if unchecked, will bankrupt Social Security and every other benefit program.
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Gary Bauer is is a conservative family values advocate and serves as president of American Values and chairman of the Campaign for Working Families. This article also appeared in Human Events Bauer was a former Republican presidential candidate and served as President Ronald Reagan’s domestic policy adviser
Tags: Gary Bauer, Campaign for Working Families, Obama Administration, Red Menace, national debt, April 15th, Tax Day, To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. Thanks!
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