U.S. News & World Report: U.S. ‘dangerously’ in debt
The U.S. has only to look at other nations’ financial crises to see what’s in store for us if Congress doesn’t tackle our mushrooming national debt, says one economic expert.
Recent research shows that economic growth is even more vital for a nation’s ability to sustain its public debt than economists used to think. Statistical analyses reveal that many debt crises in emerging economies have been caused by declines in growth. In advanced economies, the largest increases in debt ratios occurred when policymakers mistook a prolonged decline in growth for a temporary recession, and failed to cut spending or increase taxes.
Living with high debt is living dangerously. When government debt is large, a rise in interest rates causes total borrowing costs and thus the deficit to increase substantially. As larger deficits are financed, the debt also swells. Investors worried about possible default or a spike in inflation will demand even higher interest rates, creating a vicious circle.
Examples of such “self-fulfilling debt crises” have occurred recently. A sudden loss of confidence in Italy and Spain led to a temporary interest-debt spiral in late 2011 and mid-2012. Although measures by the European Central Bank calmed the markets and default was avoided, higher borrowing costs were transmitted to the private sector, further dampening economic activity.
Now is not the time to postpone tackling out-of-control spending. We need to rein in spending and decrease our national debt immediately. Click here to help Tea Party Patriots urge lawmakers to adopt commonsense spending policy that would balance our budget within five years!