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Increased spending has had predictable effects on deficits and debts. The federal budget deficit is now ten times greater than it was four years ago. Extra spending accounts for about three of every four added deficit dollars since 2007, while lowered revenue accounts for just one of four. The $14.3 trillion federal debt, equaling nearly the entire U.S. annual output, roughly matches the debt-to-GDP ratios of such basketcase economies as Portugal and Ireland. When the president insists, “We’re not Greece, we’re not Portugal,” he is only half right.
As a pressure tactic, claiming that America would default on its debt if it didn’t borrow more proved quite effective. It framed an act of fiscal incontinence—borrowing trillions more atop a $14.3 trillion debt—as an act of fiscal prudence. The president got the borrowing power that he sought largely by selling recklessness as responsibility. Such disciplined, propagandistic talking points are the stuff of hardball politics. But once the deal has been struck, why continue the charade?
The president attained what he privately sought (more borrowing). In doing so, he may have ensured what he publicly sought to avoid (a credit downgrade). America’s credit problems stem from unsustainable debt. The debt-limit agreement seems to contain some sensible, though modest, spending cuts, and it rejects the fool’s bargain of shrinking a private economy through new taxes that has already been shrunk through a recession. The main effect of the debt-ceiling agreement is, unsurprisingly, to increase the debt ceiling.
Our creditors understand that increased borrowing is just more of the “medicine” that got America sick in the first place. The fallout of following the president’s course to avert a costly credit downgrade may ironically be a costly credit downgrade.
Daniel J. Flynn is the author of Blue Collar Intellectuals: When the Enlightened and the Everyman Elevated America, forthcoming this fall from ISI Books. He writes a Monday column for Human Events and blogs at www.flynnfiles.com.
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