Tags: Our | Misguided | Borrow-and-Spend | Strategy

Our Misguided Borrow-and-Spend Strategy

Friday, 20 February 2004 12:00 AM

Back then there were few others who found the issue worthy of notice. My, how things have changed! Now hardly a day goes by without some hue and cry in the press against the titanic federal debt. Thank goodness.

Just last week Federal Reserve Chairman Alan Greenspan warned that "impressive gains" would not outshine the negatives of our growing budget deficits. Mr. Greenspan promised that the Fed will hold short-term interest rates, now at a 45-year low of 1 percent. He warned that these rates "will not be compatible indefinitely" with the Fed's fight against inflation.

If interest rates go up, one wonders what will happen to the stock market, the housing market and personal credit card debt. A rise in interest rates could stall economic growth by damaging fledgling business projects and cause other complications.

In other news, we have just about $380 billion left to spend before we have to start borrowing again! We are spending a few billion dollars a day, so it won’t be long before we have to go begging again. OK, begging is too harsh a word, especially when we have such great credit and everyone seems to want to loan us money.

I’ve heard it said that if you owe someone enough money, you own them – because they can’t afford to let you go under! That’s it! We’re using reverse Mafia psychology with a half twist on the world economy! Then again, maybe we’re just going back to the well.

Deficits REQUIRE the Treasury to borrow money to raise cash needed to keep the government operating. Money is borrowed by selling Treasury securities like T-bills, notes, bonds and savings bonds. Sooner or later we are going to have to offer a better rate on our securities in order to get investors interested in buying them.

After all, we’re only paying 1 percent to 2 percent interest on them now. With the dollar declining against world currencies (the euro is now worth about $1.29, it now takes close to $1.90 to buy a British pound, etc.), U.S. securities are not the hottest investment. Currently, our interest payments on the federal debt are the third-largest budget item. If it gets more expensive for us to borrow money, it won’t be good.

Think of the United States economy as a business. Think of it as the largest business in the neighborhood. All of us are dependent on that business running well. It’s not just the folks in that company who show up for work every day (you and me), but the companies in neighboring cities and their employees (the rest of the world) who do business with that institution who have an interest in its viability. Literally no one in the world wants to see the U.S. economy falter.

However, runaway federal deficits have a pernicious affect on the confidence of international investors in the American economy. How long would you invest in a company you knew was poorly run? If we remain on our current spending spree, the world will look elsewhere for a sound investment and thereby force its wild and willful neighbor to repair its practices.

We can mend our ways. We can tighten our belts, forgo some luxuries and get serious about getting this economy back on track. While we need to pay for roads and bridges, the military, Social Security and the like, we can probably do without many freakishly silly pork barrel projects. As Ronald Reagan once said: "Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other."

Citizens Against Government Waste (CAGW) estimates that since 1991 our government has barbecued about $162 billion! Some of that is bacon under the bridge, so to speak, but there is still time to recover billions if Congress can find the will to do so.

One idea for tackling the onerous task of restraining federal spending is gaining speed. A Commission on the Accountability and Review of Federal Agencies (CARFA) is in the making. CARFA would be given the assignment of exposing duplicative, wasteful, inefficient or outdated programs.

The CARFA commission is a beautifully simple idea. The commission would compile a list of recommendations and submit it to Congress for a straight up-or-down vote – without amendments. Sen. Sam Brownback, R-Kan., and Rep. Todd Tihart. R-Kan., developed this great idea.

The bills that will bring the CARFA commission to fruition are S. 1688 and H.R. 3213. There are new co-signers on the Hill for this legislation almost every day. There is room for additional signatures!

The CARFA idea is not a panacea, but it will show the world that we are beginning to get serious about turning our misguided borrow-and-spend strategy around. Who knows how many benefits will come from that! There has never been a better time for CARFA.

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Back then there were few others who found the issue worthy of notice.My, how things have changed!Now hardly a day goes by without some hue and cry in the press against the titanic federal debt. Thank goodness. Just last week Federal Reserve Chairman Alan Greenspan warned...
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Friday, 20 February 2004 12:00 AM
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