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Federal Debt Continues To Climb, What Will the GOP Do?
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Posted: Sunday, November 08, 2015 at 10:10 AM EST - Item ID: 497
This November, the government will reach the debt limit. The debt limit is among the most important tools in the Republican legislative arsenal since it is a bill that the president must sign or risk a government default. Granted by the Constitutional power of the purse, this tool provides Congress its most influential opportunities to advance a conservative agenda. The success in advancing a conservative agenda can be complicated in a divided government, where the president can veto any Republican priority. However, there are two occasions when the Constitution defers to Congress: spending bills and the debt limit. The power of the purse is a constitutional privilege that was supposed to provide Congress considerable preference over the budget. In fact, even a scholar at the liberal Brookings Institute put the power of the purse and the debt limit into perspective, "[the debt limit] expresses a national devotion to the idea of thrift and economical management of the fiscal affairs of the government by Congress." No issue is more pressing or important than the unsustainable levels of federal debt. The debt limit debate is perfectly situated for Republicans to address the debt problem, similar to what conservatives accomplished with the Budget Control Act of 2011. Republicans have the opportunity now to demand that any increase in the debt limit is attached so spending and deficit reduction. So why is Republican Leadership already preparing for the GOP surrender theatre, forfeiting their constitutional powers; their only opportunity to make a difference? Federal Debt is About Blow UP. Starting in 2009, the federal government ran four years of trillion-dollar deficits. Deficits of that magnitude had not been witnessed since America's involvement in World War II. After one of the slowest post-recession recoveries and Democratic tax hikes, deficits began to drop. These large deficits were certainly a symptom of the reckless spending initiatives by establishment Republicans and Democrats, first with TARP, and then with the Obama Stimulus plan. But there were other factors lurking within those deficits worth pointing out. In total, nearly a quarter of those trillion-dollar deficits, from 2009 to 2012, were the result of "automatic stabilizers," funds that kick in during an economic downturn, such as welfare spending, unemployment benefits, etcetera. A slight improvement in the economy helps reduce recession-related spending, thus have helped reduce the deficit. The deficits have slowly been receding from their $1.4 trillion peak in 2009. The dropping deficits are expected to level off in 2017. After 2017, things get really interesting – and worrisome – when deficits begin to once again accelerate. By 2025, the government will be permanently running trillion dollar deficits, and those are projected to occur without the excuse of the great recession, or recession-caused spending problems, like high unemployment. This acceleration is solely reflective of the structural degradation of the U.S. budget. In fact, the problem is worse than annual trillion dollar deficits, but the accumulation of those deficits. The result is the unprecedented accumulation of post-WWII debt that will have serious consequences for Americans standard of living. The experts at CBO: We cannot afford the debt then – and we cannot afford it now. Much to the chagrin of lawmakers, debt does not come free. The government must pay interest on its debt; the amount of interest payments is the result of a combination of the levels of debt and interest rates. The Congressional Budget Office predicts low interest rates for the next decade. Yet, interest payments continue to increase along with the mountains of debt. Quite literally, the interest we pay on the debt is about to consume government spending; what is a relatively minor expense of about 6 percent of the budget today climbs to 13 percent of the budget by 2025 –more money than we'll spend on national defense. The Problem is Bad on Paper, but is Actually Much Worse. Debt rating agencies like Moodys and Standard and Poor's (S&P) are both entities that monitor and weigh the risks of debt. In 2011, Standard and Poor's determined that America's debt situation was no longer sustainable, and for the first time downgraded the U.S. debt rating from AAA (outstanding) to AA+ (excellent). Even more remarkable, that decision was handed down immediately after a $2.1 trillion deficit reduction law was passed, arguing that it was merely too little too late. This is what the S&P had to say "[the decision to downgrade] reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics." Moody's on the other hand has never downgraded U.S. debt, but they are beginning to issue stern warnings. Just last week, Reuters published the findings of a new Moody's report, "The ratings agency said that a downgrade could occur toward the end of the decade or into the 2020's, however, if fiscal policy remained unchanged and U.S. budget deficits and the debt ratios increase. The agency cited spending on social programs as a concern." Why does this matter? A downgrade simply suggests that U.S. debt instruments are becoming riskier. Like any investment, the riskier they become, the higher the premium is demanded to hold such debt. This leads to higher interest rates, which would send a negative ripple effect throughout the economy. As important, higher interest rates mean a bigger chunk of the federal budget. Get this – in addition to the huge costs highlighted above - if interest rates increase by just 1 percent over the next decade, net interest spending increases by $1.7 trillion; that means that instead of paying $755 billion on net interest costs in 2025, the government would have to spend over $1 trillion. Net interest would become the third largest government program behind the equally unsustainable programs of Medicare and Social Security spending. President Obama Keeps Asking for More Debt, and Republican Keep Giving It. When will Republicans tell Obama that enough is enough, already? Since President Obama entered office, the president has increased the public debt by more than all other presidents combined. - The debt problem will not fix itself; it requires the confidence and determination of our elected leaders. Conservatives know that the country cannot afford to place the fate of the coming fiscal crisis in the hands of Democrats. It shouldn't even be a debate among Republicans; the right thing to do for the party, and American, is to get to work. The debt limit is the Republican opportunity to be relevant, to matter. Will Republicans fail us? It is a question that should be carried into the 2016 election.
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