National Debt Will Choke Economic Growth - Granite Grok

National Debt Will Choke Economic Growth

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We knew or should have known this. About two months ago the Federal Reserve had to step into the markets. It bailed out the banking system yet again.  The Fed was acting to bail out the nation’s money markets. The money markets were experiencing a liquidity crisis.

The liquidity crisis came from a surge in U.S. government borrowing to fund its spending.

The Chairman of the Fed sounds the alarm

The Federal Reserve Chairman testified before the Budget and Joint Economic Committees. He told Congress the federal government’s course of debt-fueled spending is on an “unsustainable path.”  USA Today‘s Paul Davidson reports on Powell’s November 13 congressional testimony. The testimony warns there is a limit on our ability to respond to future economic distress. Chairman Powell made clear we are getting close to both the Fed’s and the U.S. government’s limits saying:

“The federal budget is on an unsustainable path, with high and rising debt… Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn… The debt is growing faster than the economy and that is unsustainable…” He added that a high and rising federal debt also can “restrain private investment and, thereby, reduce productivity and overall economic growth.”

That’s because high and rising debt will push interest rates higher. Powell is correct to recognize that growing debt faster than the economy is unsustainable. The U.S. government’s spending has grown far faster than its tax revenues. That is the problem. If we kept governmental spending growth on pace with the rate of growth of the U.S. economy there would be no issue.

The solution

This issue is solvable. It is not hard to comprehend. There is no requirement for a complete grasp of particle physics. The easiest way to solve the issue turns out to be the least painful way. It is, quite simply, to actually make a balanced budget and stick to it.

We must set the U.S. government’s spending and debt growth trajectories onto sustainable paths. That means we must restrain the spending growth rate. It must be kept to less than the growth rate of government tax revenues. The U.S. Congress sets the trajectory for federal spending. Powell is talking to the right end of the horse.

Unfortunately, a horse is probably more likely to listen and act responsibly. The people he’s delivering the message to bare the people spending on an unsustainably. We have not passed a budget for 23 years. Your representatives are not listening and responding appropriately. Fiscal responsibility alone is sufficient reason to VOTE for change. National debt will choke economic growth which will lower our standard of living.