The Debt End of Democrats’ Stimulus
National Debt to Eclipse GDP as Growth Remains Slow, But Democrats Prescribe More Failed Stimulus
- A report out Monday suggested that U.S. national debt inched closer to eclipsing the nation’s total GDP in October and is expected to surpass the GDP number in the next couple of months.
- The milestone is especially significant given recent economic studies linking high debt levels to reduced national economic growth. Sure enough, there are plenty of signs that economic growth is occurring at a snail’s pace, as job creators remain wary of the broader state of the economy.
- Instead of pivoting away from the job-destroying policies that have made a bad economy worse, Democrats are getting in line behind even more failed stimulus that not only has no record of creating jobs but may also add to the national debt.
BACKGROUND
A report out Monday suggested that U.S. national debt inched closer to eclipsing the nation’s total GDP in October and is expected to surpass the GDP number in the next couple of months:
“NATIONAL DEBT NEARS SIZE OF U.S. ECONOMY”: “The news: The ever-escalating national debt will hit and then surpass the size of the entire U.S. economy — an ignominious distinction previously achieved by the likes of Japan, Italy and Greece.” (Richard Wolf, “National Debt Nears Size of U.S. Economy,” USA Today, 10/29/2011)
U.S. DEBT TO SURPASS GDP WITHIN THE NEXT COUPLE MONTHS: “As a result, the gross national debt, which is what the federal government owes both to outside creditors and its own trust funds (notably Social Security), won’t reach 100% of the economy for another month or two. It’s a mere $14.9 trillion.” (Richard Wolf, “National Debt Nears Size of U.S. Economy,” USA Today, 10/29/2011)
TRANSLATION: U.S. GOVERNMENT ABOUT TO “OWE MORE THAN [WE] PRODUCE IN A YEAR”: “A debt-to-GDP ratio of 98% is bad enough. It puts the U.S. closer to rarified territory — countries that owe more than they produce in a year.”(Richard Wolf, “National Debt Nears Size of U.S. Economy,” USA Today, 10/29/2011)
The milestone is especially significant given recent economic studies linking high debt levels to reduced national economic growth. Sure enough, there are plenty of signs that economic growth is occurring at a snail’s pace, as job creators remain wary of the broader state of the economy:
MAJOR ECONOMIC STUDY LINKED GOVERNMENT DEBT TO SLOWER ECONOMIC GROWTH: “The sharp run-up in public sector debt will likely prove one of the most enduring legacies of the 2007-2009 financial crises in the United States and elsewhere… Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes… Seldom do countries simply ‘grow’ their way out of deep debt.” (Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in a Time of Debt,” American Economic Review Papers and Proceedings, 12/31/2009)
GOLDMAN SACHS RESEARCH: “A DEFICIT-FINANCED BOOST WILL EVENTUALLY LEAD TO A DRAG”: “The eventual effect of sustained fiscal imbalance is slower growth and greater risk of a fiscal crisis. Our estimates suggest that a 10-point increase in the debt/GDP ratio lowers growth four years later by 0.2 percentage point, and increases the probability of a debt crisis by 2.5% in the aftermath of a financial crisis like the recent one. …
“Ultimately, what goes up must come down. In the case of the federal budget, this means that a deficit-financed boost to growth will eventually lead to a drag. While policymakers can try to smooth the transition by phasing in cuts and incorporating multi-year fiscal commitments, achieving a sustainable fiscal policy will inevitably be a painful but necessary process.” (Jan Hatzius and Alec Phillips, “Fiscal Restraint: A Question of When, Not If,” Goldman Sachs Global ECS U.S. Research, 3/2/2011)
AND ECONOMIC CHALLENGES REMAIN:
“CHICAGO SURVEY SIGNALS SLOWER GROWTH”: “The Chicago Business Barometer fell to 58.4 in October, the lowest reading since May, the Institute for Supply Management-Chicago said Monday. The barometer, also known as the Chicago Purchasing Managers Index, or PMI, had been at 60.4 in September. Economists surveyed by Dow Jones Newswires projected the business barometer would slip to 59.8 in October.” (Howard Packowitz, “Chicago Survey Signals Slower Growth,”The Wall Street Journal, 10/31/2011)
MEDIAN HOUSEHOLD INCOME BELOW 2000 LEVELS: “One benchmark, income of the median household—meaning the one in the very middle of the middle—declined 3.2% to $53,518 during the 2007-2009 recession and fell a further 6.7% to $49,909 between June 2009 and June 2011, according to an analysis of monthly Census Bureau numbers. According to a study done by former Bureau staffer Gordon Green and others at data-crunching firm Sentier Research, the income of the typical American household, adjusted for inflation and in 2011 dollars, has dropped well below the January 2000 level ($55,836).” (Brenda Cronin, “Slow Recovery Feels Like Recession,” The Wall Street Journal, 10/31/2011)
OUTPUT 3% LOWER THAN AT THE END OF 2007: “No recession since the Great Depression was deeper or longer than the most recent. It has taken two years for the nation’s total output of goods and services to return to pre-recession levels, longer than after any recession since World War II. And on a per-capita basis, the Commerce Department said Thursday, output remains 3% lower than it was at the end of 2007.” (Brenda Cronin, “Slow Recovery Feels Like Recession,” The Wall Street Journal, 10/31/2011)
HOME PRICES HAVEN’T REBOUNDED AND 20% OF MORTGAGE HOLDERS OWES MORE THAN THE VALUE OF THEIR HOME: “As of June, home prices were 10.1% below mid-2009 levels. One in five mortgage borrowers has a loan bigger than the value of the underlying home.” (Brenda Cronin, “Slow Recovery Feels Like Recession,” The Wall Street Journal, 10/31/2011)
DROP IN INCOME IS ACROSS THE BOARD: “Education, once a reliable means to employment and earning power, has been no insurance against declining incomes during the recovery. Between June 2009 and June 2011, the median income of households led by high school graduates fell 8.2%, Sentier estimates. Households led by people with two-year associates degrees saw incomes fall even more: 11.2%. And even those led by individuals with bachelor’s degrees were squeezed: down 5.9%.”(Brenda Cronin, “Slow Recovery Feels Like Recession,” The Wall Street Journal, 10/31/2011)
BLOOMBERG: 95% OF AMERICANS HOLD NEGATIVE VIEW OF ECONOMY, WORST SINCE RECESSION AND CLOSE TO A RECORD HIGH: (Timothy Homan, “Consumers in U.S. Are Most Negative on Economy Since Recession,” Bloomberg, 10/27/2011)
Instead of pivoting away from the job-destroying policies that have made a bad economy worse, Democrats are getting in line behind even more failed stimulus that not only has no record of creating jobs but may also add to the national debt:
93 DEMOCRATS OFFICIALLY COSPONSORING STIMULUS 2.0: (Thomas.gov, Accessed 10/30/2011)
AND MORE DEMOCRATS MAY BE GETTING READY TO SIGN ON: “Well, the co-sponsorship is really not reflective of the widespread support that exists in the Democratic caucus and in the country for the American Jobs Act.” (CNN’s “State of the Union,” 10/16/2011)
WHILE CBO ADMITS ” ‘IMPOSSIBLE TO PROVE’ STIMULUS CREATED JOBS”: “SEN. TOOMEY: ‘I know it is your view that the recent huge increase in spending and the corresponding big deficits have generated more economic growth and more job creation that we would have had in the absence of those things. But surely you’d agree, that that essentially asks for a comparison to a counterfactual, and as such, it’s completely impossible to prove?’ DR. DOUGLAS ELMENDORF, director of the CBO: ‘Yes, that’s right, senator.‘” (Remarks from Doug Elmendorf, “CBO Agrees With Toomey: ‘Impossible to Prove’ Stimulus Created Jobs,” Real Clear Politics, 10/27/2011)
BIDEN TELLS CNN: “NOBODY” CAN SAY STIMULUS “DID NOT DO VERY GOOD THINGS” FOR THE ECONOMY: (CNN’s “State Of The Union”, 10/23/11)
WHITE HOUSE NO LONGER TALKING ABOUT JOBS “SAVED OR CREATED”—THE NEW LANGUAGE IS JOBS “SUPPORTED” BY STIMULUS: (“Teacher Jobs At Risk,” The White House, October 2011)