As Debt Surpasses GDP, Pelosi Says No More Spending Cuts

America’s Debt Crisis Remains Serious, But Democrats Are Denying Responsibility for the Debt Hole They Helped Dig

• News broke yesterday that U.S. debt is now officially greater than 100% of the nation’s gross domestic product (GDP)—a development that has major implications for America’s future economic growth.
• Despite this announcement on the severity of America’s debt crisis and its implications for economic growth, Democrat Leader Nancy Pelosi told a meeting of liberal bloggers that Democrats would not accept future spending cuts, even if it means a government shutdown.
• Although Democrats like Pelosi refuse to take the nation’s debt crisis seriously, the Democrats’ spending binge during their two years of one-party control played a large part in digging America’s debt hole.

BACKGROUND 

News broke yesterday that U.S. debt is now officially greater than 100% of the nation’s gross domestic product (GDP)—a development that has major implications for America’s future economic growth:

DEBT NOW GREATER THAN 100% OF GDP; TRANSLATION: AMERICA OWES MORE THAN THE SIZE OF THE ECONOMY. “US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday. …

“The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.” (“U.S. Borrowing Tops 100% of GDP: Treasury,” Agence France Press, 8/3/20111)

MAJOR ECONOMIC STUDY LINKED DEBT OVER 90% OF GDP 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: “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.  (See No Rush for the Exit,” Global Economics Paper, No. 200, June 30, 2010 and “When One Crisis Leads to Another,” US Economics Analyst, 11/04, Jan. 28, 2011.)  To avoid this, lawmakers must begin to identify deficit reduction strategies.

“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) 

Despite this announcement on the severity of America’s debt crisis and its implications for economic growth, Democrat Leader Nancy Pelosi told a meeting of liberal bloggers that Democrats would not accept future spending cuts, even if it means a government shutdown:

PELOSI TELLS LIBERAL BLOGGERS: DEMOCRATS WILL “REFUSE TO AGREE TO FURTHER SPENDING CUTS” EVEN IF IT MEANS A SHUTDOWN. “At a meeting this morning with online writers, House Minority Leader Nancy Pelosi tried to persuade progressives that the Democratic caucus won’t get rolled in future hostage standoffs. … The clear implication, however, is that she does in fact expect Democrats to refuse to agree to further spending cuts even if refusal results in a shutdown.” (Matthew Yglesias, “Pelosi Vows Dems Won’t Get Rolled Again,”ThinkProgress, 8/4/42011) 

Although Democrats like Pelosi refuse to take the nation’s debt crisis seriously, the Democrats’ spending binge during their two years of one-party control played a large part in digging America’s debt hole: 

FEDERAL BUDGET DEFICITS TO PASS $1 TRILLION FOR THIRD STRAIGHT YEAR:“The federal budget deficit is on pace to eclipse $1 trillion for a third straight year as congressional and White House negotiators try to hammer out a deal on the nation’s budget.” (Vicki Needham, “Federal Budget Deficit Nearing $1 Trillion,” The Hill, 7/13/2011)

LET’S REMEMBER: DEMOCRATS INCREASED DEBT BY $3.6 TRILLION IN TWO YEARS: “In January 2009, the national debt stood at $10.6 trillion. Fueled by the so-called stimulus, this debt grew by $3.6 trillion in just two years. The magnitude of this amount is difficult to grasp without a comparison. Under Mr. Obama, government has been borrowing $4.6 billion each and every day. That’s more than it cost to construct the world’s tallest building, Dubai’s Burj Khalifa. In other words, the amount of future productivity being sapped from the American economy would be sufficient to construct a new 160-story skyscraper every day of the year.” (Editorial, “Obama Spending Hits New Records,” The Washington Times, 3/8/2011)

OBAMA HAS INCREASED DEBT AT NEARLY THREE TIMES THE RATE BUSH DID: “During Obama’s presidency to date, the national debt has risen by an average of $1.723 trillion a year — or by a jaw-dropping $1.116 trillion more, per year, than it rose even under Bush. … In his first two fiscal years, Obama will run up a total of $2.826 trillion in deficit spending ($1.294 trillion in 2010, an estimated $1.267 trillion in 2011 (p. 23), and the $265 billion in “stimulus” money that was spent in 2009). Thus, Bush ran up an average of $410 billion in deficit spending per year, while Obama is running up an average of $1.413 trillion in deficit spending per year — or $1.003 trillion a year more than Bush.” (Jeffrey H. Anderson, “The Weekly Standard: Obama Vs. Bush on Debt,” NPR, 1/25/2011)

ALL WHILE OBAMA’S TREASURY LOST TRACK OF HOW MUCH DEBT CHINA OWNS: “When the Treasury Department revamped its rules for participating in government bond auctions two years ago, officials said they were simply modernizing outdated procedures.

“The real reason for the change, a Reuters investigation has found, was more serious: The Treasury had concluded that China was buying much more in U.S. government debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open – all without ruffling feathers in Beijing. …

“The incident calls into question just how clear a handle the Treasury has had on who is buying U.S. debt.Chinese entities hold at least $1.115 trillion in U.S. government debt, and are thought to account for roughly 26 percent of the paper issued by Washington, according to U.S. government data released on June 15.” (Emily Flitter, “U.S. Caught China Buying More Debt than Disclosed,” Reuters,6/30/2011)