As I diaried two years ago when many didn't think that there could be a connection between a housing boom, reckless Wall Street gambling and a looming worldwide economic recession/depression, the United States' government was running, as it had been for the past 28 years, on bad economic practice. It still is. That bad-for-the-nation practice has its roots in Republican economic ideology, one that favors the few (the wealthy) and one that has framed debates for countless Congressional seats. Tax-and-spend, used as a reflexive slur against Democratic candidates by Republicans, is believed by way too many people as something inherently reckless when in fact it is akin to cash-and-carry which is about as financially prudent a position as a nation (or a person) can take. Yes, thanks to adopting the GOP's economic values of (a) spending as much as possible on credit, (b) keeping taxes among the world's lowest, and (c) making those with the least means bear an inappropriately large tax burden, it's finally hit the fan. Think it stinks now, just wait.
I argue that it is now time for the government to abandon its hedonistic have-now-pay-later economic mindset, and to start repaying the piper. Failure to do so will lead to catastrophic consequences.
None of us have to hold degrees in economics or feel like we can talk intelligently about default swaps to know these simple economic truths:
- Spending the money we have, and not a dollar more, keeps us from living outside our means, no matter how much we might be tempted to purchase that lavish six-bedroom home, the Cartier watch, or the slick new automobile that we covet.
- Spending more money than we have requires us to borrow money on credit, but lenders of money (creditors) have their limits on how much money they will lend us.
- Spending more money than we have (spending on credit) means that we will have to lower our spending at some point and therefore lower our standard of living too high, because we are going to have to repay our debts to our creditors plus the interest they charge us.
- The more we spend on credit (and the longer we do so), the more drastically we will have to lower our standard of living too high when it comes time to pay back our creditors.
If you've ever purchased too much using your credit card (and as of less than a year ago American citizens had over $900 billion in outstanding credit card debt, a rise of over 7% from the previous year with an average U.S. household carrying $9,300 of such debt), you've learned these economic truths—perhaps the hard way. With some differences, government spending is a lot like personal spending and government finances are quite analogous to personal finances: spend on credit and at some point the nation will have to tighten its belt. Spend way, way too much on credit and the nation's creditors will shut them off. Spend way, way too much on credit and fail to pay your creditors, and the creditors will start repossessing the nation's assets.
Thanks to the budget spending deficits of the administrations of Ronald Reagan ($200 million dollar deficit), George H.W. Bush ($300 million dollar deficit), and George W. Bush ($482 billion dollar deficit at last count and rising), and thanks to the GOP deregulation laws that turned money-earning bankers and creditors into high-rolling casino gamblers going broke by the week, and thanks to lenders (and real estate agents) that preyed upon some people's (greedy and/or ignorant) desire for a larger house than they could afford, as a nation the United States will move to a period of economic austerity. Period. It is not a matter of if, it is a matter of when and of how austere. Here's a reality check from the CIA's world factbook: last year we had revenues totaling $2.568 trillion, but we had expenditures totaling $2.73 trillion. That's the hand we've been given by the GOP's economic policies for just one year. With the exception of Bill Clinton's administration ($200 billion surplus), we've been spending more than we've been earning since 1980. But let me put last year's government figures in easier to grasp household terms: what the nation did last year equates to a family earning $60,000, but spending $63,600. Now, if you had, say, $6,000 dollars in credit card debt at the beginning of the year, but you had to add $3,600 to your balance because you overspent that much, you'd have at the end of the year a credit card balance of $9,600. You'd have gone from $6,000 in the hole to $9,600 in the hole in just one quick year (and don't forget how interest increases your actual debt). Let me stress this point: given how we have borrowed on credit over the past 28 years and given how we continue to borrow on credit, the United States will move to a period of economic austerity.
If we play the awful hand the GOP's economic policies have handed this nation as intelligently as possible, we will find ourselves in a prolonged recession. That's the best we can do. If we continue to spend on credit and/or if we take actions that will lower the value of the dollar, however, we will find ourselves in a significant economic depression. For sure, one thing that would lower the value of the dollar is the United States Treasury Department printing billions of dollars of new money. Under the Wall Street bailout schemes the Treasury would have to do just that—create more dollars. But with no actual matching wealth to back up those dollars, the value of the dollar decreases. The result for the world: a devalued dollar. The result for Americans: depressed purchasing power. The result for the U.S. government: more difficulty paying outstanding loans and more difficulty getting new loans (or getting them at higher interest rates). It just blows my mind how many Democrats have bought hook-line-and-sinker the GOP's "we gotta lower taxes" mantra. Lowering taxes (which is the government's way of "earning" money for its expenditures without adding to our national debt) is analogous to a family breadwinner saying that the way to get out from under the family's credit card debt is to work less and thus earn less! Today I saw on my local TV news broadcast that the Senate is crafting a Wall Street bailout scheme that would—you guessed it—provide "tax relief". All I could do was silently shake my head and begin to write this diary.
We can choose to pay now or we can choose to wait awhile longer and be forced into greater economic hardship (when our creditors shut off our borrowing and/or when the devalued dollar makes for cigarette paper, austerity will choose us). Whenever it will be that we finally begin to once and for all abandon our GOP economic mindset—and adopt a new progressive mindset that includes simple, sensible financial industry regulation laws such as not allowing banks to ever, ever, ever sell home mortgages (let alone bundle them with other notes and sell the package over and over again)—we will live much, much more frugally and smarter. As a people, we might even have a little bit more soul, a little better character. With the expenditures of Social Security baby boomers looming like a Category 5 hurricane bearing down on a country with poorly built levees, I'm thinking that the foreclosures we've seen thus far is just the first rainband of what lies ahead. Yeah, austerity, it's gonna hurt.