FEDERAL BUDGET DEFICIT MADNESS

From the Houston Chronicle editorial board:

History shows that while tax hikes in the 1990s were followed by spending restraints, tax cuts over the last two decades led to spending sprees. At no time in the modern era has the convergence of spending hikes and revenue cuts been so pronounced. The tragedy is that for every dollar borrowed, the imposition of fiscal responsibility becomes more difficult for future presidents and Congresses.

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And it's not just a problem for the future. It's doubly maddening that most public criticism of our ever increasing deficit spending is in terms of future harm: the deficit threatens to eat our lunch right now. It's simple, so I don't understand why this isn't part of the conversation. Generally, deficit spending is only a future problem when it remains below a certain percentage of the GDP. Once spending passes that percentage mark, however, all hell breaks loose. Under such conditions, the borrowing is on such a massive scale that it affects the overall dollar supply. That is, there are less dollars for businesses to borrow for use in upgrading equipment, expanding, general maintenance, etc. Or look at it this way. What happens is that in order to avoid inflation that would come from usual business borrowing added to what the government borrows, the Federal Reserve Board must raise interest rates. High interest rates drag the economy to a standstill. I don't think we've crossed that GDP percentage line yet, but if the GOP dominated Congress continues to spend like drunken sailors, it will definitely happen. And that's when another recession begins.

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