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Now or NeverSaving America from Economic Collapse
By DeMint, Jim
Center StreetCopyright © 2012 DeMint, Jim
All right reserved.
America in Peril
Introduction by Senator Pat Toomey
We stand at a crucial point in our nation’s history. Too many for too long in our government have treated the wallets of American taxpayers like bottomless piggy banks, spending to their heart’s desire. The result? A $15 trillion national debt, with many in government demanding that we keep borrowing and spending—and saying that the failure to do so would be “irresponsible.”
Imagine a family that routinely lives beyond its means. That continuously spends more than they take in and makes up the difference by maxing out their credit cards. When this family reaches the limit on all of their credit cards—who would think it’s a good idea to give them another credit card?
Such is the dangerous and dominant mind-set of Washington elites.
It’s time for an honest debate on how we’re going to get spending under control—a debate over what kind of spending cuts we must have and what kind of reforms we must make.
We can’t just keep kicking the can down the road. We’ve been doing this for too long. It never ends well when government continues to take on too much debt, and nobody wants to see the government shut down. No one wants to see the disruption that might come from failing to raise the debt limit—again. Washington leaders are keen on reminding everyone on Capitol Hill about the supposed calamities that will occur if we stop borrowing and spending.
But they seem to forget what the American people want us to stop—a federal government that continues with business as usual.
When it comes to the economic crises we face—both today and in the future—there are two vital priorities that we need to focus on first and foremost here in Washington. The first is economic growth and the job creation that comes with it. The second is restoring fiscal discipline to a government that’s lost all sense of fiscal discipline.
We can have terrific economic growth and the prosperity we’ve been looking for if the federal government would simply remember this—prosperity comes from the private sector. It doesn’t come from government. The only help government can provide is improving the free market environment.
A well-functioning government does these four key things: First, it makes sure we have a legal system that respects property rights, because the clear title and ownership and ability to use private property are the cornerstone of a free enterprise system. Second, it requires that the government establish sensible regulations that are not excessive—too much regulation has unintended consequences that curb our ability to create the jobs that we need. Third, government needs to ensure a stable currency. We need sound money because debasing one’s currency is the way to financial ruin—not the path to prosperity.
Fourth—and perhaps most important—governments need to live within their means. Government can’t be spending too much money and can’t have taxes at too high a level. Government spending must be limited, which means it should certainly be much less than what we have today.
On these four priorities the U.S. government is not doing a good job. The most egregious failure obviously continues to be the level of spending, and the Obama administration’s spending alone amounts to about a 25 percent increase in the size of the government virtually overnight. Let me be clear—the federal government is now spending a quarter of America’s entire economic output.
Our deficits are now over $1.5 trillion in a single year. That’s more than 10 percent of our entire economy. And, of course, running up these annual deficits where we’re spending more than we bring in—the shortfall is made up by borrowing from other nations like China to make up the difference. The size and scope of our debt is as overwhelming as it is alarming.
Such debt costs us job growth and jobs because it creates a tremendous uncertainty in our economic future due to an unsustainable fiscal path. This uncertainty discourages entrepreneurs and job creators from the kind of investment and entrepreneurial ingenuity we desperately need. The risks of doing nothing to change course are very real. History is replete with examples of countries that have accumulated too much debt, and it never ends well. Very often it leads to very high rates of inflation, and it can lead to much higher interest rates, which in turn can have a crippling effect on job growth. It also leads to financial disruptions, which can be very damaging as evidenced by recent events in Greece, Ireland, and elsewhere overseas.
The most irresponsible thing we could do is simply raise the debt limit and run up even more debt without doing anything to fix the problems that led to our current crisis. We need to have real cuts in spending now—not later, at some distant hypothetical point of time in the future—but now.
We need a balanced budget amendment. We need statutory spending caps written into law. We need to obey the Constitution again and get back to the spirit of our Founders: that of a free people who remain free due to a government that largely stays out of the way. Our government was supposed to be one that is severely limited—not one that diminishes citizens’ prospects and darkens our children’s future through unlimited spending and growth.
America can have a terrific economic recovery, booming growth, and tremendous job creation if government could once again help to create the right environment instead of hampering the individual and free market principles that have made this country great. If we can find the wisdom and will to do this, then the twenty-first century can be another great American century.
In 2008, candidate Barack Obama explained why he believed so many Americans were flocking to his presidential campaign:
“You did it because you know in your hearts that at this moment—a moment that will define a generation—we cannot afford to keep doing what we’ve been doing. We owe our children a better future. We owe our country a better future.”
Candidate Obama won the last presidential election with many promises about what we owe this generation and the next. President Obama puts this country and its future in great peril precisely because of how much we now owe.
George W. Bush left this country with an $11 trillion national debt. Barack Obama has taken our debt to more than $15 trillion. According to the Bureau of Labor Statistics, in 2010 the share of our debt for each individual American worker was $90,962. Still, arguably the most heated debates in Washington today are over whether or not we should raise the legal debt limit or “debt ceiling.” This is insanity.
Said candidate Obama: “Let us unite in common effort to chart a new course for America,” and our President has done precisely this—by uniting the spending habits of the last administration with the even bigger government desires of his own.
Obama and his party have indeed charted a new course for America—off a cliff.
If yesterday’s American family looked forward to a future of certain opportunity and prosperity, today’s parents more often fear that there won’t be any American dreams left for their own children—as we continue to borrow and print money as if there was no tomorrow. The Labor Bureau statistics that indicate that each individual American worker owes over $90,000 toward our debt also tell us each American family owes $10,807 to China alone. Why must the world’s only superpower borrow from other nations to survive? Why is a country as great and wealthy as America so heavily indebted to China?
If something doesn’t change quickly—there really will be no tomorrow. Unfortunately, many Americans have become immune to such telltale warnings.
Washington politicians have long used the word crisis to frighten and manipulate the public. During the 2008 bank bailouts, a Republican president insisted government had to act immediately to avoid economic calamity. In 2009, the Obama administration’s stimulus spending was sold to the public with the same sense of urgency and impending doom. Many Americans were suspicious of these claims.
They were right to be suspicious.
We have become numb to politicians crying wolf when there is no wolf. We have grown weary of a government that always claims the sky is falling every time politicians need another excuse to spend to the moon. We’ve become fed up with Washington leaders who create a sense of panic in order to rush through some new government program—often to solve problems created by other government programs.
Alerting Americans to the current and very real threat of economic disaster will mean getting through to a general public that has become cynical and apathetic, and not without reason. Many Americans—and indeed much of the world—view the United States as being too big to fail. How could the world’s largest economy collapse? We are the unsinkable Titanic!
Fortunately, many Americans—who understand full well what it’s like to balance a checkbook or a household budget—can already see what so many Washington leaders can’t: that the seemingly invincible United States is rapidly approaching an economic iceberg. Basic math tells us that we can’t keep spending more than we are bringing in indefinitely.
Common sense tells us that America must reverse course.
The more we fully understand America’s fiscal and economic crisis, the better equipped we’ll be not only to address these problems but to enlist the support of those who truly understand what the situation demands. The most powerful message is the truth, and the worsening of our economic crisis can be avoided if we act.
But make no mistake. It really is now or never—and America literally cannot afford to ignore one of the most serious economic crises in the history of this great nation.
Spending and Debt Are Out of Control
Washington always acts in great haste when it comes to spending money in the name of solving problems. But now it has become clear that our greatest problem is spending itself. Not surprisingly, Washington doesn’t seem to be in any hurry to address it.
In 2011, health care, Social Security, and interest on the debt accounted for 50 percent of all federal spending. Defense represented 20 percent of total spending in 2011. All other spending represented 30 percent.
By 2021, health care and Social Security alone will require 50 percent of all federal spending. Interest on the national debt will increase to 16 percent of the budget (interest costs will be much more if interest rates return to historical norms). Defense and other spending, such as education, transportation, and welfare, will all decrease substantially.
The national debt is the total amount the United States owes. Our national deficit is the amount we owe or borrow annually. Since 2005 annual deficits have increased exponentially, reaching a $1.6 trillion deficit in 2011. This is the largest one-year deficit in American history, and the borrowing required for that year alone was larger than the entire federal budget only three decades ago.
This is not some temporary problem caused by the recession. The current projections indicate annual deficits will average nearly a trillion dollars for the next ten years. Unless immediate action is taken to reduce spending and to grow our economy, our debt will increase from $15 trillion to $25 trillion over the next ten years—even after the so-called historic spending cuts President Obama and some in Congress are crowing about. The only thing historic about the current reforms the Democrats have suggested is that they are the same ineffective proposals Washington politicians have promoted for most of our history—trying to convince voters that a decrease in new spending somehow constitutes an actual reduction in overall spending.
No serious observer believes America can handle this much debt, so something dramatic must now occur—for better or worse. Either Americans will elect a new president and new politicians serious about balancing our budget or there will be an economic apocalypse.
Once again, this is not hyperbole—it’s basic math. Our current political leaders have proven time and again that they will not make the tough choices necessary to save this country. If this country is to avoid fiscal ruin, the ability to make tough choices must be voters’ new litmus test—and the politicians unable to make those choices must be replaced!
Debt Concerns Now Unify Americans
Even in confronting this unfortunate doom and gloom, there is a silver lining. Americans are perhaps more united than ever against irresponsible spending and debt. The Tea Party movement, though new and unorganized, stunned the Washington political establishment in the 2010 elections by throwing out the Democrat majority in the House and weakening the Democrat majority in the Senate. More than a few big-spending senior Republicans were also sent home.
Simply put, the Tea Party sees a more important dividing line than mere Republican versus Democrat—and supports only those who believe in limited government as opposed to the politicians in both parties who still consider government unlimited.
Millions of Americans who were fed up with a Republican president who doubled the size of government and the debt voted for “hope” and “change” in 2008. We then became stuck with a Democratic President who has now tripled the size of government and the debt—and he’s just getting started.
In the last four years, Americans from across the political spectrum united in their opposition to ObamaCare, a big-government disaster that continues to prove even more devilish with every new detail. Tea Party members became alarmed and angry over the massive growth of government, exorbitant new spending programs, and the government takeover of private companies and the health-care industry. These grassroots activists were not just Republicans; they included Democrats, libertarians, independents, and many who had never been involved in politics. Americans from different backgrounds and political persuasions voiced grave concern over the troubling direction of their country. It was the beginning of an American awakening.
I was dubbed “Senator Tea Party” due to my vocal support for the many grassroots rallies organized throughout the country. When I spoke at Tea Party events and made my way through the crowds, I would often hear three things: Thanks for fighting, Don’t back down, and We’re praying for you. And of course everyone would ask, What can we do? These folks came from all walks of life, but they were all eager for political leadership from elected officials serious about stopping the federal government from bankrupting our nation.
While Congress and President Obama are deeply divided over spending issues, Americans are increasingly unified over their demands for our government to live within its means and to balance the federal budget. Americans now overwhelmingly support a balanced budget amendment to the Constitution that would force the President and Congress to actually balance the federal budget every year. Passing a constitutional requirement to balance the federal budget should be any serious candidate’s war cry as we head into the 2012 elections.
This would finally and permanently put a spending straitjacket on Washington politicians. As expected, congressional Democrats consistently block the passage of any legislation toward this end.
Obama and the Democrats Are Not Serious about Debt
The resistance by President Obama and the Democrats to addressing our debt crisis was on full display during the 2011 budget debates. After more than two years of operating the federal government with no budget—and after watching Obama increase the federal debt by more than four trillion dollars—my frustration with the President and Democrat leadership had boiled over.
In one of my many speeches on the Senate floor attempting to sound the alarm to congressional colleagues and C-SPAN viewers, I used posters to make my points. My first poster was a quote from Obama when he was a Senator in 2006: “Increasing America’s debt weakens us domestically and internationally.” I also noted that Senator Obama accused President Bush of “a failure of leadership” for asking Congress to increase the federal government’s debt ceiling. Now Obama and the Democrats not only chastise Republicans who refuse to raise the debt ceiling as irresponsible, but the President has asked Congress to increase our debt limit four times in his first three years as President.
The hypocrisy was astounding, the fiscal recklessness even more so.
I also used a poster on the Senate floor that featured a chart comparing America’s national debt relative to the size of our economy to three bankrupt European nations (Greece, Ireland, and Portugal). These nations had already used emergency bailout funds to avoid defaulting on their loans. America’s debt relative to the size of our economy is already greater than both Ireland and Portugal. Unlike these smaller countries, if America needed a bailout, there is no country or international organization that could rescue us.
Many Americans wonder how their government can so arrogantly and egregiously operate outside its budget. That’s easy—there is no budget.
This is not a joke. Senate Democrats and the White House did not produce a budget for three years. Three years! How could we possibly get spending under control if we don’t even have a budget? When President Obama finally did send a budget proposal to Congress in 2011, it almost doubled the national debt. Thankfully, the Senate voted it down 97–0. Lest anyone think I’m spinning some sort of partisan narrative to magnify this administration’s glaring unconcern for our current crisis—not one Republican or Democrat voted for the President’s 2011 budget. Not one. Even Obama’s own party could not defend his indefensibly expensive budget.
That Majority Leader Harry Reid and Senate Democrats had not produced a budget of their own for three years was no surprise—budget plans reveal priorities, and the Democrats were afraid to show Americans their real plans. To illustrate this point, I decided to put one of Senator Reid’s quotes—which appeared in the Los Angeles Times on May 20, 2011—on a poster: “There’s no need to have a Democratic budget… It would be foolish of us to do a budget at this stage.” Reid was right. It would be foolish because it would reveal that the Democrats intended to raise taxes so they could continue to increase spending and expand government. Americans knew that we needed to cut spending, not raise taxes.
Apparently Reid and the Democrats planned to bank on the American people being foolish and apathetic. What faith they have in their fellow Americans!
Republican Attempts to Cut Spending Met with Democrats’ “Mediscare” Fearmongering
My Senate budget speech was part of the 2011 debate that led to four budget votes in the Senate. As mentioned earlier, one vote was on President Obama’s proposed budget (defeated 97–0). Another vote was on Republican Senator Rand Paul’s proposal to balance the budget within five years. Republicans also presented Senator Pat Toomey’s proposal to balance the budget in ten years. Every Democrat voted against the President’s budget and both of the Republican proposals.
Democrats also voted against the House Republican budget developed by Representative Paul Ryan, which included Medicare reforms. Senator Harry Reid forced a vote in the Senate because he believed that Democrats could use the Ryan budget and his suggested Medicare reforms to frighten senior citizens in the 2012 elections. Reid’s confidence was buoyed by a special New York congressional election in 2011 that many pundits and observers believed was determined by the Medicare issue.
Democrats were ecstatic in May 2011 about their victory in New York’s 26th District special election. This was one of the few congressional seats in New York that had been consistently held by Republicans. But after the Republican candidate expressed support for Ryan’s Medicare reforms—and millions were spent on “Mediscare” ads to frighten seniors—a Democrat won the seat.
One television commercial depicted an older woman in a wheelchair being thrown off a cliff with the message saying Republicans were going to destroy Medicare and leave seniors to die without health care.
Perhaps I’m just jaded or too cynical after working in Washington for twelve years—but I’m convinced Democrats believe Americans are stupid, especially seniors. And now Democratic strategists think they can win the 2012 elections by using misleading and dishonest information about Paul Ryan’s plan to save Medicare.
The truth: the Democrats already have Medicare on a course for certain bankruptcy. They took a half trillion dollars from Medicare to help pay for ObamaCare while telling seniors that these cuts would somehow strengthen Medicare (remember: Democrats think we’re stupid). And the President’s 2011 budget cut Medicare payments to physicians another 35 percent.
Democrats plan on having a field day in 2012 by telling voters Republicans want to cut Medicare. Not only is this not true, it is ObamaCare that actually cuts Medicare.
The downward spiral of Medicare is becoming evident. Many seniors are already having a difficult time finding doctors. Every year, fewer physicians accept new Medicare patients because government payments don’t cover their costs. Medicare will soon pay doctors less than Medicaid, a health plan offered for the poor by the states. And these cuts in physician payments from Medicare are coming at a time when millions of baby boomers are reaching retirement. Anyone who believes Medicare can continue without reform is dreaming! Ryan’s proposal does precisely this, and yet his plan to save Medicare has elicited only hysterics and scare tactics from the Democrats. Given Obama’s budget, his party’s lack of a budget in Congress, and the Democrats’ general view of government as being unlimited and infinitely expandable, it’s no secret which party continues to live in fantasyland.
The truth about the Ryan budget is this: it affects no one over fifty-five years old, but saves Medicare for current seniors by helping younger workers buy less expensive private health plans when they retire. This plan for younger workers will save money in the future, preserving traditional Medicare for everyone over fifty-five.
None of the changes envisioned by Ryan would take effect for ten years—so everyone over fifty-five will have traditional Medicare, and those who begin retiring in ten years will receive an annual subsidy from $8,000 to $12,000 to help pay for a personal health plan. An average of $10,000 is likely much more than most Americans pay for health care now annually. This is a plan that most retirees in the future will prefer because it will allow them to keep their private health plans and see the doctors of their choice.
Health-Care Spending and Social Security Will Soon Consume the Entire Federal Budget
The Democrats’ plan to use “Mediscare” tactics against Republicans in the 2012 elections is a sobering reminder of the utter lack of seriousness from Democrats when it comes to dealing with America’s spending and debt. Federal spending impacts almost all areas of American life—but rapid increases in health-care spending are the greatest threat to American solvency.
Increases in Medicare costs alone are already crowding out other priorities like defense spending. When combined with all federal health-care spending and Social Security, entitlements will consume the entire federal budget in less than forty years. Democrats would have us believe that this is sustainable—basic math and common sense, however, prove otherwise.
Federal entitlements are growing rapidly and will soon crowd out other national priorities. And yet, President Obama and the Democrats have not proposed any reforms to slow the growth of these programs. In fact, they continue to propose new spending programs.
Federal health-care mandates are also forcing large spending increases upon the states. Medicaid, a state/federal health plan partnership for the poor, is pushing many states toward bankruptcy. Medicaid spending by states has increased four times faster than spending for elementary and secondary education, five times faster than higher education, and nine times faster than transportation spending over the past two decades.
A block grant program for Medicaid would give states the opportunity to opt out of federal mandates and administer the program as they see fit. States that do this would be given a capped amount of money from the federal government to spend on the program. Rhode Island has already done this with success. Reports the Wall Street Journal: “Medicaid is the major cost driver in state budgets these days, so several Governors have proposed a deal to the White House and Congress: They’ll take less money in return for the flexibility to run the program with fewer federal strings. A case study in the potential benefits is coming from liberal Rhode Island, of all unlikely places… In 2008, then-Governor Don Carcieri asked Washington for a Medicaid waiver and block grant to reform a program that consumed 30% of its budget… The results? After 18 months, Rhode Island’s Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion.”
As Medicaid continues to consume a larger share of state budgets, new ObamaCare mandates require that by 2014, states must enroll every individual who resides in a household below 138 percent of the federal poverty level into Medicaid plans. Before ObamaCare was passed, a low income alone was not enough to qualify for Medicaid. The individual also had to meet other requirements that might include age, pregnancy, disability, or blindness. When ObamaCare becomes fully operational, Medicaid will be expanded to those who make below 138 percent of the poverty line. In 2011, the federal poverty line for a family of four is $22,250. When ObamaCare comes into effect, that poverty line is expected to be $33,000. This will increase the size of the welfare state by up to 25 million able-bodied adults.
In addition to the growing pressure on state budgets, ObamaCare’s expansion of Medicaid will likely lead to lower-quality health care. Only 10 percent of primary care physicians (PCPs) believe that new Medicaid enrollees will be able to find appropriate medical care after the expansion. Adding millions more individuals to Medicaid will likely cause a further deterioration in the quality of care Medicaid enrollees receive.
Federal and state spending for health care will dwarf all other government spending—but Social Security will even further exacerbate our spending and debt problems. Social Security spending began to exceed projected tax collections in 2010, and these deficits will quickly grow to alarming proportions. After adjusting for inflation, annual deficits will reach $81.5 billion in 2020, $288.4 billion in 2030, and $343.6 billion in 2035.
Virtually every Democratic “reform” does nothing to address what is making entitlements insolvent while suggesting that we spend or borrow even more money—the very reason we are facing a financial crisis in the first place. Republicans are insisting that entitlements can be saved only by making tough and practical cost-cutting decisions. The Democrats seem to think Medicare, Medicaid, and Social Security can be saved through magic. Democrats continue to portray Republican attempts to reform entitlements as cutting or harming these programs—when in fact the persistent refusal to reform entitlements is the surest way to end them.
Federal Regulations Cost Economy $1.75 Trillion Every Year
There are two sides to America’s debt problem: spending and revenues. When American families face tough times they curtail spending. Common sense and math dictate that less revenue means sacrifices must be made—yet Washington continues to balk at this simple and obvious equation.
The federal government is obviously spending much more than we can afford. In fact, we are now irresponsibly borrowing 43 cents for every dollar we spend, with no way to pay it back. To make matters worse, America’s exploding debt is compounded by the slow growth in tax revenues from a lethargic economy.
America’s economy is burdened with federal policies that include the highest corporate tax rate in the world, unbridled litigation, and costly regulations. As government control has increased in almost every area of the American economy, the cost of regulation has slowed job growth and economic expansion. The federal government is making it increasingly difficult for American businesses to compete in the global economy.
The Small Business Administration’s Office of Advocacy stated in September 2010: “The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008. Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008.”
And remember—this was before the recent further expansion of government that has coincided with the election of Barack Obama.
This expansion continues with no end in sight. Republicans often cite the absurd amount of government regulation that puts an unnecessary burden on small businesses. As the Obama administration promises more jobs it continues to make life difficult for those who do the hiring.
According to an August 2010 Heritage Foundation report: “The Code of Federal Regulations, a compendium of all existing federal rules, hit a record high of 163,333 pages in 2009, an increase of some 22,000 since the beginning of the decade. One prime example of a major rule is the recent Environmental Protection Agency (EPA) final rule establishing a mandatory greenhouse gas emissions reporting program for sources with emissions that exceed 25,000 tons per year (74 Fed. Reg. 56,260). The EPA rule establishing mandatory greenhouse gas emissions reporting requirements is a huge burden to American businesses. Rules and regulations are not passed by Congress. They are unilaterally enacted by government agencies and unelected, unaccountable bureaucrats. The EPA example shows how just one rule can have devastating and costly effects—and the EPA estimates the cost of the rule at $115 million for the first year and $72 million on an annualized basis in subsequent years.”
The Competitive Enterprise Institute’s 2011 yearly report clearly shows how such regulation hurts American individuals and businesses. New jobs and any economic recovery that follows will naturally come from the private sector—precisely the folks the federal government now is trying to hamper even further. Concerning these regulations the CEI found: “Given 2010’s actual government spending or outlays of $3.456 trillion, the regulatory ‘hidden tax’ [of $1.75 trillion] stands at an unprecedented 50.7 percent of the level of federal spending itself… Regulatory costs dwarf corporate income taxes of $157 billion [and are nearly double] the estimated 2010 individual income taxes of $936 billion… Combining regulatory costs with federal FY 2010 outlays of $3.456 trillion reveals a federal government whose share of the entire economy now reaches 35.5 percent.”
So with an American economy already heavily burdened by federal control and regulatory cost, President Obama’s 2012 budget proposal, if enacted, would make it even harder for businesses to expand and add jobs.
Perhaps when the current administration talks about creating more jobs, it means employing more government employees and federal regulators.
Consider this—a report issued by the George Washington University Regulatory Studies Center and the Weidenbaum Center at Washington University in St. Louis found President Obama’s proposed budget for Fiscal Year 2012 would increase regulatory costs by another $57.3 billion.
Cumulatively, all of these numbers are indeed staggering. Yet few in Washington seem to possess the sense of urgency proportionate to what these troublesome statistics demand.
Massive Debt Undermines Sound Monetary Policy
Another unaccountable, out-of-control arm of the federal government is the Federal Reserve. Republican Congressman Ron Paul has been warning about the dangers of the Fed for decades and continues to be a leading spokesman on this issue. In his book Liberty Defined, Paul gives a simple history of the Federal Reserve and notes the inherent dangers of the institution:
The problem is easily summarized. Money was once rooted in a scarce commodity like gold or silver. It could not be manufactured by governments. In the late eighteenth and in the nineteenth centuries, there were many debates about the first and second Bank of the United States. In 1913, Congress created the Federal Reserve with the power to print new money. This allowed government to pay for wars and welfare, but it also generated economic instability with booms and busts… Since 1971, the dollar is not redeemable in anything but itself. It is nothing but a symbol, and there are no limits on the number of dollars government and the Fed can create. The result has been an unchecked expansion of the state and a brutal and long inflation that has reduced our living standards in deceptive ways.
Older Americans often wonder what happened to the days when you could go see a movie and enjoy popcorn and a soda for a quarter. This would be a minor and rather trivial example of one of the “deceptive” ways in which inflation spurred by the Federal Reserve has “reduced our living standards.”
A less trivial but equally deceptive example would be what the Fed calls “quantitative easing,” in which it simply prints more money out of thin air—devaluing our dollar and damaging our country’s economic health and global standing. And in its role as a supposedly independent guardian of the dollar, the Federal Reserve has embarked on policies that have undermined worldwide confidence in our currency and set the stage for massive inflation.
The federal government’s huge and growing debt has soaked up much of the available credit in America. This lack of capital in the private sector has slowed economic growth. The Federal Reserve responded to this credit crunch by buying much of the debt issued by the Treasury Department in 2010 and 2011. The honest term for this is “monetizing debt,” but Chairman Ben Bernanke called it—you guessed it—“quantitative easing.” Of course, both terms simply mean printing new money out of thin air. Since the beginning of 2011, the Fed’s purchase of Treasury debt equals almost 90 percent of the increase in total public debt outstanding. The Federal Reserve has expanded America’s money supply (printed money) at the fastest rate in history. The dollar’s current value when compared to gold, oil, and other commodities is now at an all-time low. The result has been a loss of confidence in the dollar internationally, as evidenced by the drop in foreign-exchange transactions involving the U.S. dollar along with the decline in our currency’s share of the makeup of global foreign-exchange reserves. The International Monetary Fund has even considered replacements for the U.S. dollar as the world’s reserve currency.
The weakness of the dollar seriously complicates America’s debt problems. If creditors like China believe the dollar will continue to lose value because of reckless monetary policies and the failure of Congress to control spending—they will either stop lending us money or significantly increase interest rates. Either outcome could be catastrophic because America is already backed into a corner: we are forced to borrow more money simply to pay our bills.
The creditworthiness of the United States is now in serious question. In April 2011, Standard & Poor’s revised its out look on the nation’s long-term credit rating from “stable” to “negative.” This was a stunning slap in the face for the world’s largest economy. S&P’s report included the following statement:
We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer “AAA” sovereigns…. The U.S.’s fiscal profile has deteriorated steadily during the past decade and, in our view, has worsened further as a result of the recent financial crisis and ensuing recession. Moreover, more than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on a strategy to reverse recent fiscal deterioration or address longer-term fiscal pressures.
In 2003–2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most “AAA” rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.
Excerpted from Now or Never by DeMint, Jim Copyright © 2012 by DeMint, Jim. Excerpted by permission.
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