Federal spending will ruin the economy

Posted 4/12/22

Who wouldn’t want to go back to the economically simpler times before the COVID pandemic? 

We can look back with warm nostalgia on 2019, when our national debt was only a frightening …

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Federal spending will ruin the economy


Who wouldn’t want to go back to the economically simpler times before the COVID pandemic? 

We can look back with warm nostalgia on 2019, when our national debt was only a frightening $23 trillion. The following year, a global pandemic shut down businesses, forced millions out of work, and led to a wave of government emergency spending that has brought the debt to around a terrifying $30 trillion. 

The rate by which our debt grows makes a few years seem like a generation. 

Even before $7 trillion was added to our crushing national obligation, well educated economists, as well as everyday citizens, were warning that if the government kept borrowing and printing money, it was going to lead to inflation. 

Those who pushed for government spending are now blaming everything but this policy for the nation’s highest rise in inflation in 40 years, including greedy corporations’ price gouging, Russia’s invasion of Ukraine and lingering effects of supply-chain problems from the pandemic shutdowns. 

While those things have some impact, the fact is there are far too many dollars following after far too few goods and services. Put simply, when the government creates money out of thin air and gushes it out a billion dollars at a time, people buy lots of things. That creates a higher demand for products, and suppliers respond by increasing prices. A key measure of the money supply is referred to as M2, and it has risen by 41% in just two years. 

Now a dozen states such as California and Hawaii are considering handing out checks to its residents to help them cope with high prices on things like gas. The government created a big problem, but don’t worry. The government will solve it with more of that which created the problem. 

Despite the predictable rise of inflation, the pace of government spending on the national level continues unabated. President Joe Biden’s budget plan calls for $5.8 trillion in government spending. This is more than the government takes in, so Biden is proposing a wealth tax that is likely to face constitutional challenges. Should it survive those and raise as much revenue as the Biden administration estimates, which is questionable, we will still have a $1.2 trillion deficit. That will, of course, be covered by more borrowing and printing money.

To help mitigate inflation, Federal Reserve Chairman Jerome Powell announced plans for a series of interest rate hikes. These are pretty small and may not have much of an impact. This approach is nothing new. The Fed responded to inflation in the 1980s with interest rate hikes that doubled in just two years to over 20%. That did effectively reduce inflation, but it also led to a severe recession. 

Interest rate increases today will not only cause a serious economic downturn, they will also increase the burden of the astoundingly burdensome national debt. To fix its balance sheet, the federal government will need to either enact massive tax hikes on everyone, cut government services, or do a combination of both. 

Already the Congressional Budget Office is estimating that the cost of paying interest on the national debt will account for nearly one-quarter of every dollar of federal spending by 2050, and that estimate relies on assuming interest rates continue to be historically low. 

Biden’s budget plan speaks to a federal government’s refusal to avoid any economic reckoning for this gross fiscal irresponsibility. It’s a lot like watching an alcoholic descend deeper than rock bottom, while refusing to admit he has a problem. 

To make this analogy more accurate though, you have to imagine the alcoholic has full access to your bank account — and that of your children and grandchildren.

It’s time for Congress to sober up and show some fiscal responsibility.