“The U.S. government racked up a gaping shortfall in the first two months of this fiscal year after posting a record budget deficit last year,” reported Reuters recently.
Just in the first two months of fiscal 2010 – which began in October – our federal government managed to incur a budget shortfall of $292 billion. Alarmingly, the gap for the first two months of this fiscal year was wider than it was during the same period of last year, which ended with with a record deficit of $1.42 trillion. If this present trend continues, the government’s shortfall by the end of this month will match Bush’s 2008 spending record of $455 billion.
Here is something to ponder: In barely three months of this fiscal year, Barack Obama will manage to equal the outlays of George W. Bush during the whole of the most financially profligate year of his presidency.
The left used to bemoan bitterly the financial overindulgence of the Bush administration. Justifiably so. It is just too bad that they do not apply the same standard to the current administration. With Obama in charge they see nothing wrong with mind-boggling financial excesses and waste. They, in fact, clamor for more. Not content with the $786 billion pork-ridden outrage which they speciously called “stimulus,” they now demand another rescue package.
Liberals across the ranks – from Paul Krugman through Nancy Pelosi to Howard Dean – are calling for more money to be pumped into the moribund economy. One should not be wholly surprised at this, as the big spenders have repeatedly shown themselves singularly adept at stirring taxpayer money to themselves and their friends. Last week it was revealed, for example, that two firms ran by Hillary Clinton’s pollster Mark Penn grabbed nearly $6 million from the stimulus allotment.
In his speech at the Brookings Institution last week President Obama promised what amounts to a new round of massive spending. Among other things, the president proposed “a boost in investment in the nation’s infrastructure beyond what was included in the Recovery Act,” “incentives for consumers who retrofit their homes to become more energy efficient,” and expanding “select Recovery Act initiatives to promote energy efficiency and clean energy jobs.” The president crowned this laundry list of waste with what looks like another financial black hole which will devour yet more of this country’s wealth:
[W]e should also extend the relief in the Recovery Act, including emergency assistance to seniors, unemployment insurance benefits, COBRA, and relief to states and localities to prevent layoffs.
Keep in mind that all this waste will be pilled up on top of last year’s out-of-control spending which resulted in record-breaking deficits and a skyrocketing national debt.
Moody’s Investor Service has warned that the fiscal mess in Washington may eventually prompt it to lower America’s debt rating. Trying to be as delicate as possible, Moody’s said that the country’s public finances may “test the AAA boundaries.” One can get a sense of how bad America’s financial condition must be if even Moody’s worries about it. After all, Moody’s – the world’s top credit rating agency – did not see anything suspicious about a whole array of mortgage backed securities whose failure contributed greatly to the 2008 credit crisis.
Moody’s warning is in reality a plea for America to put its fiscal house in order. The fact that America still enjoys AAA rating is something of an anomaly, because America’s debt is not really safe. Any sober assessment must conclude that America cannot honestly settle with its creditors. The overwhelming obligations of the federal government make this impossible. America’s debts can only be nominally repaid with inflated money. Moody’s knows it, but being part of the monetary regime it will not adjust its rating to the reality of the situation. Doing so would require that the ratings of a number of other governments and financial institutions also be lowered. This would disrupt the workings of the highly fragile monetary system and expose its ultimate unviability. Ken Rogoff, the former chief economist at the International Monetary Fund was recently quoted by the British channel Sky News as saying that “so many countries are in trouble that it is hard to know where the crisis could hit next. Once one sovereign state veers into default, clusters of others usually follow.”
In the meantime, Fitch – another of the world’s top rating agencies – did cut the credit rating of Greece to BBB+ with a negative outlook. The agency cited deep concerns over the country’s public finances as the reason for the move. Greece’s problems spring from the government’s reckless spending which has pushed the nation’s budget deficit to 12.7 percent of GDP. This is way above the eurozone’s limit of 3 percent.
Anders Borg, the finance minister of Sweden, the country which currently holds the rotating EU presidency, warned that the Greeks need “to get serious about their fiscal situation.” Stating the obvious, Borg said that a country that wants to remain financially viable “can’t run a 10 or 12 per cent deficit.”
Greece’s finance minister George Papaconstantinou responded that the country’s socialist government – which came into power just two months ago in the midst of the fiscal crisis – will do “whatever is required” to lower the deficit. Whether the Greek government manages to bring the country’s finances under control remains to be seen. But it is telling that even European socialists realize that budget shortfalls in the ten percent range pose a serious problem and they intend to do something about it.
Many Americans still do not realize that our federal government ran a deficit of 10 percent of GDP in fiscal 2009. But unlike the Greek socialists this administration apparently experiences no sense of alarm or urgency. Quite to the contrary, they plan to spend even more as evidenced by the president’s speech at the Brookings Institution. As if this was not enough, they are also pushing for so-called health reform, which would bleed untold trillion from our collapsing financial house.
In the past we used to laugh at the apparent mindlessness and follies of European socialists. These days, however, they seem less extreme and more reasonable than their counterparts in Washington.