The U.S. government’s spending deficit of roughly $2 trillion for the fiscal year ending Sept. 30 is an atrocity perpetrated by President Joe Biden and congressional Democrats. It is a grave threat to America’s future.
Former Presidents Barack Obama and Donald Trump also had terrible records of spending unnecessarily and massively beyond what is prudent, but it took Biden and the Nancy Pelosi Democrats to make those terrible records look good in comparison. Biden and the Democrats have engineered a fiscal wreck.
BIDEN MISLEADS ON DEFICIT REDUCTION
Let’s be clear about just how bad it is, and why. Most nations, like families with mortgages, can afford a considerable debt, but when it equals or exceeds the entire annual economy, as it has for the past few years, it has entered a danger zone.
Because the dollar is the “reserve currency” for most of the world, the U.S. can push a bit further into the danger zone without worrying that its debt will suddenly be called in. That leeway, though, isn’t infinite. When debt substantially exceeds the government’s ability to pay it off, investors and lenders naturally doubt the “full faith and credit” of the federal government. These worries will, at some point, reach critical mass, and this could produce sudden panic and economic devastation as bad as or worse than the Great Depression.
We experienced a relatively small taste of such panic during the financial crisis of 2008-09, and it was ugly. It was, moreover, panic about the collapse of private sector financial institutions. Imagine how bad it could be if the federal government backstop were seen as unreliable.
A major warning sign of nascent disaster arising from today’s debt-financed spending came on Aug. 1 when Fitch Ratings downgraded Washington’s credit rating, citing “a steady deteriorating in standards of governance” and “a vulnerability of the U.S. fiscal position to future economic shocks.” That was before the latest numbers revealed the rare combination of drastically rising deficits while unemployment is low. Even Jason Furman, a senior economist in the profligate Obama administration, said that “to see this in an economy with low unemployment is truly stunning. There’s never been anything like it.”
The deficit is doubling from $1 trillion to $2 trillion in just a year while the economy is growing because of Democratic policies. Even after money was obviously sloshing in excess around the economy in the aftermath of supposedly urgent spending during the coronavirus pandemic, Democrats brushed aside unified Republican opposition to pass two of the most dishonestly named pieces of legislation ever — the American Rescue Plan and the Inflation Reduction Act. The first featured $1.9 trillion in new spending, which was like spraying gasoline on an engine fire, and the second sluiced another $891 billion on top of that, largely in giveaways to useless “clean energy” schemes. On top of that — yes, there is more! — came a bloated $1.2 trillion “infrastructure” bill, some of which was probably needed but which was hundreds of billions of dollars beyond what fiscally responsible Republicans were offering.
These laws amped up the deficit directly and made it worse through secondary effects. Because the spending spurred inflation, the Federal Reserve raised interest rates to the highest levels in 22 years. This pushed the cost to the federal government, and thus to taxpayers, of paying interest on the debt nearly $200 billion higher in just two years. That’s an extra $200 billion of higher deficit spending. Federal Social Security outlays, indexed to inflation, also rose vertiginously. Meanwhile, when stocks fell because of inflation and interest rate worries, tax revenues from capital gains collapsed.
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More money out and less money in. Voila, the already dangerous deficit doubled, despite Biden’s promise to reduce it.
This is a crisis of the Democrats’ making. Spending restraint is desperately needed. Biden should, but presumably won’t even consider, accepting the need to cut costs.
