Debt & deficit.

• Author: Scherer, John L.
• Position: National debt

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U.S. FOREIGN POLICY has made two critical mistakes: Uncontrolled defense expenditures have undermined the economy, and America's global reach has exceeded its grasp.

As the economy falters, members of the Bush Administration insist that it is fundamentally healthy and the long-term outlook positive. The Federal deficit, the difference between tax revenues and expenditures, is growing at twice last year's pace. The stimulus package will add almost $170,000,000,000 to the deficit. The government must invigorate the economy with rebates in the hopes of averting recession, but this course cannot be stayed; besides, it already may be too late.

The total national debt, the money owed by the Federal government to its creditors, is approaching 9.2 trillion dollars, equal to around 15% of all the assets in the country. Vice Pres. Dick Cheney once asserted, "[Pres. Ronald] Reagan proved deficits don't matter." This, though, is counterintuitive. The correlation between growing debt and a worsening economy is not direct but, in the long run, debt fuels inflation. The Treasury must print currency to pay interest on money borrowed to finance this escalating debt.

Moreover, the U.S. economy has underperformed during the past decade. The stock market plunged in October 1987; credit dried up from August to October 1998; and the market plummeted after Sept. 11, 2001. Recessions occurred from mid 1991 to March 1992, and again in 2001 and 2005. No prominent financial experts warned of the subprime mortgage crisis of 2007-08. Around 2,000,000 people lost their homes in the first year. As of this writing, the Dow Jones industrial average has dropped almost 2,000 points since October 2007. In October 1987, when the stock market fell over 500 points, more than 20%, Federal Reserve Chairman Alan Greenspan immediately suggested that the Reagan Administration cooperate with Congress to cut the national debt, yet the debt has spiraled upward.

Inflation averaged 2.6% between 19912006, leading many economists to insist it was not a problem. On the other hand, wholesale inflation, which includes energy and food costs, rose more than six percent in 2007. The statistics are deceiving, though. Personal experience should suggest that the annual increases in the cost of energy, gasoline, health care, and food have been higher during the past few years than reported, perhaps even double-digit.

A steep rise in the national debt occurred when Pres. Reagan, a supply-sider, cut taxes and fattened defense budgets. Reagan tripled the debt from $700,000,000,000 at the beginning of his presidency to 2.6 trillion dollars by the end of Fiscal Year 1988. George W. Bush has added another 40% to the debt, a significant percentage of it through hefty defense to finance the conflicts in Iraq and If those who insist on cutting taxes get their way, we all will pay via inflation.

The Bush Administration has proposed that the U.S. spend close to $700,000,000,000 on defense in FY2009, which includes the official defense budget of $515,000,000,000, as well as such related items as intelligence ($50,000,000,000), homeland security ($55,000,000,000), and emergency outlays for Iraq and Afghanistan ($70,000,000,000 and likely to double). Defense items (to the tune of $9,000,000,000) also are hidden in other budgets...