Our Nation's Debt

[dollardaze]

The two presidential candidates and congressional leaders have been proposing billions of dollars in tax breaks along with other measures intended to spur economic growth. These proposals could send the federal deficit to almost $1 trillion this year (the highest since the end of WWII).

As the government has embarked on a huge spending spree intended to stop the implosion of the U.S. financial system and is borrowing so much money, that economists fear these practices could undermine the nation's economic security for years to come. Congress may consider more spending as soon as next month, potentially digging the nation's hole even deeper.

The numbers are adding up fast. Since President Bush signed an economic stimulus package in February, authorizing billions of dollars in rebates for American taxpayers, the government has pledged as much as $1.5 trillion to prop up the economy. It has approved new mortgages for struggling homeowners, salvage operations for faltering financial institutions and a historic $700 billion bailout plan to put money into banks paralyzed by the financial crisis.

The Treasury Department has borrowed almost $500 billion from foreign governments, pension plans, and other investors to replenish the coffers of the Federal Reserve. Since the end of August, the national debt has risen from $9.6 trillion to $10.3 trillion, and borrowing for the bank bailout is yet to come.

Meanwhile, the budget deficit (the annual difference between government spending and tax collections) has risen rapidly. It jumped from $162 billion last year to $455 billion in the fiscal year that ended in September, mainly because of the cost of the stimulus package, as well as slowing tax revenues and rising expenses in Iraq and Afghanistan.

The budget picture looking forward is even blacker. While the deficit is projected to be about $550 billion for the fiscal year that began Oct. 1, budget analysts have yet to figure in the effects of a recession, which could easily tack on another $100 billion. They also have not included the first $250 billion being spent on the bailout plan, which the White House budget office said this week must be added, even though much if not all of the money is eventually expected to be returned to the Treasury.

With options for a second round of stimulus spending starting at $52 billion (the size of the package proposed earlier this week by Republican presidential candidate John McCain) it's not hard to imagine the deficit rising to $1 trillion. That would approach 7 percent of the economy, a yawning budget chasm not seen since 1946.

Some economists say that prospect should dampen talk of further spending, while others say it's better to spend the money now in an effort to protect jobs and smooth over the harshest effects of a recession, instead of losing the money later through sharply lower tax collections and higher unemployment payments. Economists advising House Democrats are urging a spending package of as much as $300 billion, arguing the economy could shrink by about that much over the next year.

For months, Democrats have been calling for additional spending to assist the unemployed and other struggling consumers. The House passed a second stimulus measure last month, but President Bush threatened to veto the $61 billion package and died in the Senate. Calls to revive the measure grew more insistent after Congress approved the $700 billion bailout, prompting Democrats to argue that if the government could afford so much money for Wall Street, it could afford to direct some to Main Street, too.

With the Nov. 4 election less than three weeks away, stimulus plans are proliferating. McCain this week unveiled his $52 billion package, which includes tax breaks for Americans withdrawing money from retirement accounts, eliminating taxes on unemployment benefits, and a cut in capital-gains taxes for investors who sell long-held stocks.

McCain also proposed using almost half of the money from the $700 billion bailout to buy mortgages held by distressed homeowners, renegotiate their debt and help them stay in their homes.

Democratic presidential candidate Barack Obama had initially proposed directing billions of dollars to road projects, aid to state governments struggling with budget shortfalls and a broad tax rebate worth $500 to individuals and $1,000 to families. This week, he added a temporary tax credit for companies that hire workers in the United States, raising the price of his plan to $175 billion.

On Capitol Hill, House Speaker Nancy PelosiD-Calif.) had been calling for $150 billion in new spending until a summit this week with economists. On Thursday, Pelosi told interviewer Charlie Rose that her economic recovery package could grow "a couple hundred billion dollars" and would include many of the same measures Obama has proposed, as well as an extension of unemployment insurance and an increase in spending on food stamps.

House Minority Leader, John Boehner (R-Ohio) jumped aboard the stimulus bandwagon this week, issuing a proposal that included many of McCain's ideas. Aides said a cost estimate for the GOP plan was not available.
The White House has reacted coolly to talk of a second stimulus package, though there are signs that its opposition is softening. White House press secretary Dana Perino this week left the door open to further stimulus, though she emphasized that the president remains leery of calls for new spending on roads and infrastructure, arguing that such projects generally take too long to have an immediate economic impact.

[pennypinch]

Doesn't all of this frighten you? I mean how are we going to ever get ourselves out of this financial hole? Where does this leave us with the rest of the world? Does this make us vulnerable? Have we lost the power we once held? It really scares me to think of the actual numbers involved here. How do you feel about this?

[dollardaze]

In answer to your first question.....oh yes, it scares me half to death. I believe it leaves us extremely vulnerable to the rest of the world. We have indeed lost at least the financial power that we once held, we owe so many other countries money, and so they now have that power over us, at least in my thinking.

I'm not sure what to think about it all, I'm not sure I can think clearly about all of this, it's so scary. I do know that we need to be prepared in case the bailouts and other government interventions don't work. I'm just not too sure how to go about preparing. I was raised by a poor farming family, so the knowledge that I gained from them could be my saving grace in the future.