Christian Debt Recovery

Difference Between Debt And Deficit

August 29th, 2008 |

Author: Gavin

Budget Deficits, Media Hype, and the US Economy

The past three years have been a trying time for a notable portion of the United States citizenry. As a country, we have muddled through TARP, quantitative easing, real estate short sales, QE2 and a load of other bail out anachronisms in hopes of solving a catastrophic price decline in the real estate markets caused by questionable bundling of mortgages that were then offered for sale to interested third parties (who were unaware of the less-than-stellar viability of these investments) and the resulting financial crisis.

We, as a country, have initiated an unimpressive range of unsuccessful programs designed to solve one simple equation. The programs were initiated with a single stated goal in mind; put more money in the system in hope banks will lend more money, and encourage people to spend more money. Banks have modestly ramped up their lending, but the consumer has not embraced a comfort level strong enough to return to pre-2008 spending levels. Thus, we are enduring in an economy with an anemic GDP of 1%. It’s also noteworthy to mention that domestic corporations are retaining very high levels of cash, but so far have not been talked into spending their high cash levels on rehiring laid-off employees.

So we find ourselves in a bit of quandary, or “Liquidity Trap” as Paul Krugman often describes in his column. Though, I would also note that during the last two FOMC meetings the Fed has declined to make substantive changes in their approach to the economy. Though the Fed’s balance sheet is in excess of 2.5 trillion of rolling treasury debt, which they will continue to invest, they apparently feel that the market has enough liquidity to begin a recovery…but money is not necessarily the issue.

Now enter the politicians; both the right wing Republicans and Tea Party members have made this year’s election a referendum on the national debt. There is no actual crisis that is going to occur this year or in the near future, but we desperately need to readjust our spending habits. What we don’t need is a massive decrease in government spending as we are teetering on the brink of recession. But you would think, reading and listening to most of the campaign literature that we are at our last chance to break our spending cycle or else all is lost.

And that exact moment is when the train runs off the rails. We certainly need to begin work, hard work, on our national deficit; but the deficit does not have to be solved overnight, after all, it took a considerable amount of time to accumulate our current level of debt. For the inevitable outcome of this story, read about Herbert Hoover’s presidency, his actions, and the ensuing depression.

My point is a simple one. We need to spend less and take in more. The Democrats see government as the way out of this problem. The Republicans want to cut taxes and spur business development. In different situations these approaches have been used, with nominal success. Reagan got the economy going strongly through tax cuts, as did Bush II, but in doing so they managed to pile up a large level of debt. Democrats have thrown a mountain of money at this problem, with negligible positive results.

Finally, if the politicians were serious about solving our problems they would address runaway health care spending, which has been increasing exponentially over the last ten years.

But no, we are going to kick the can a bit farther down the road, and let the next guy worry about our problems. That is really a shame, too, because we finally have some attention placed upon our fiscally irresponsible congressmen…but there is no one in congress ready to step outside the party line. So we find ourselves with the inevitable…gridlock and finger pointing.

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