Federal Deficit (& Economic Growth) Worriers Take Heart

publication date: May 15, 2009
 
Update 6/23/09: According to this recent Bloomberg article, President Barack Obama recently said that he is “confident” he won’t have to raise taxes on most Americans so long as economic growth picks up. This is also good news for the deficit and economy worriers as this demonstrates Obama's understanding of the long-term importance of economic growth. “One of the biggest variables in this whole thing is economic growth. If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama was quoted as saying.



The economic Armageddon crowd has been in a tizzy about ballooning federal budget deficits and the rapidly growing national debt. I've written about the concerns of pundits and commentators like Glenn Beck, Peter Schiff, Howard Ruff, and others.

Now, President Barack Obama has labeled the current deficit spending as "unsustainable." Interestingly, rather than focusing on the commonly cited worry of rising inflation and a possible federal bankruptcy, Obama warned of rising interest rates for consumers if the U.S. continues to finance government debt by borrowing from other countries.

Obama's comments came during a town-hall meeting in New Mexico during which the President said, "We can't keep on just borrowing from China...We have to pay interest on that debt, and that means we are mortgaging our children's future with more and more debt." Obama actually went off topic and out of his way to make his points which had nothing directly to do with the question that he got on Social Security disability (for full question and answer, see below).

A big showdown is coming in Congress over "health care reform" which the President argues is necessary to lower health care costs. Conservatives point to growing spending for retiree Medicare to argue that more government run health care will only worsen the federal deficit.

Only time will tell if health care reform will get through Congress and what impact it will have. Remember, though, that the shaping of a bill in Congress comes about through lots of compromise. Democrats, who control the House and Senate, don't want to squander their control and risk losses in the 2010 Congressional elections like the party suffered in 1994, two years into President Clinton's first term.  

 

Question: I work for Congressman Ben Luján. The limits on earnings for people on Social Security disability are so low that it discourages people from working. For those who are hoping to be self-supporting and get off Social Security disability, like myself, would you consider raising the earning limit?


President Obama's Answer: You know, I think it's something that we should look at carefully. We've got a wonderful advisory group relating to people with disabilities and how we expand opportunity, and let's examine what we can do.

Now, I will tell you that Social Security disability has gone up significantly during this recession. Some of you may have read in the last couple of days that Social Security -- the Social Security trust fund is worse off now because of the recession than it was. We were already having some issues with Social Security, and so we're going to have to do some significant reforms of Social Security.

So, in principle, the answer is, I would like to raise the income limits to encourage people to become more self-sufficient. In practice, it costs money on the front end, even though long term it may save money.  And what I'd like to do is examine this in the broader context of Social Security reform and Medicare/Medicaid reform.

What I'd like to do is just shift off -- pivot off your question to talk about this issue of debt and deficits one more time.  During a recession of this severity it is important, as I explained, for the government to step in and fill the hole in demand that was created by consumers and by businesses, to get the economy kick-started.

But the long-term deficit and debt that we have accumulated is unsustainable.  We can't keep on just borrowing from China, or borrowing from other countries -- because part of it is, we have to pay for -- we have to pay interest on that debt. And that means that we're mortgaging our children's future with more and more debt, but what's also true is that at some point they're just going to get tired of buying our debt.

And when that happens, we will really have to raise interest rates to be able to borrow, and that will raise interest rates for everybody -- on your auto loan, on your mortgage, on -- so it will have a dampening effect on the economy.

So we are going to have to deal with our long-term debt.  As I said before, the biggest thing that we can do on that front is to deal with entitlements.  We are going through the budget, line by line, page by page, rooting out waste and abuse.

We've already found $40 billion in procurement practices and no-bid contracts on the defense side that we are going to eliminate. We found $17 billion in programs that don't work and we're going to stop those programs so that -- 120 programs so that we can put the money into programs that do work.

We are going to go through -- and by the way, I just want to make a little commentary about the media here, if you don't mind. When Congress included in last year's budget a whole bunch of earmarks, you remember there was a week worth of stories about how terrible these earmarks were.  You remember this, -- a week worth of stories -- "oh, these earmarks, this is what's blowing up the deficit, this is terrible," blah, blah, blah.

And yet, as I said before, that was less than 1 percent of that entire budget that had been signed.  When we find $17 billion worth of cuts in programs, what do the same folks say?  They say, "Oh, that's nothing.  Now, that's not even -- that's not even -- that's not significant. That's not important."  Well, you can't have it both ways. If those earmarks were important, then this money is important, too.

But what is true about the budget -- is absolutely true -- is that we can cut programs, we can eliminate waste, we can eliminate abuse, we can eliminate earmarks; we could do all that stuff, and we're still going to have a major problem, because Social Security, Medicare, Medicaid, interest on the national debt.

And so I have said before and I will repeat again that my administration is going to seek to work with Congress to execute serious entitlement reform that preserves a safety net for our seniors, for people with disabilities, but also puts it on a firmer, stable footing so that people's retirements are going to be secure not just for this generation, but also for the next generation.

And that's going to be hard work. It's going to require some tough choices, but I'm going to need support of the American people to get that done. That's part of what this administration is about:  Let's make the tough choices now, so that we've got a better future for America. 



 

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Copyright Eric Tyson, 2008 - 2018 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.