Given the intransigence and ideological rigidity of the Democrats, Republicans may be forced to decide between the two calamitous scenarios as regards the US debt. The first would be to give in to the Democrats who oppose even the most minimal spending reduction, raise the debt ceiling and allow the debt to continue to skyrocket to the point of insolvency.
The second option would be to shut down the government until appropriate and effective spending reductions are agreed upon and can be instituted. Any such agreement may take quite a while to reach and, of course, would result in the U.S. defaulting on its obligations which will have quite severe consequences.
Though the Democrats will be the offending and irresponsible party in either of these financial meltdown scenarios, the Republicans will be blamed instead by the news media.
Government: US Default Could Be Doomsday Option For Economy
Scott Baker April 23, 2011
WASHINGTON (AP) — The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.
The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process.
A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime.
Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.
If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can’t pay its bills?
At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers’ paychecks.
A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit “a recovery-ending event.” U.S. stock markets would likely tank — devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs.
Eventually, the cost of most credit would rise — from business and consumer loans to home mortgages, auto financing and credit cards.
Continued stalemate could also further depress the value of the dollar and challenge the greenback‘s status as the world’s prime “reserve currency.”
China and other countries that now hold about 50 percent of all U.S. Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt.
The U.S. has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the U.S. government and a new credit-rating report this week questioning the country’s fiscal health, Treasury bills and bonds are losing luster.
If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside.
The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping.
When the House first rejected the Bush administration’s $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on U.S. debt to “negative” from “stable,” possibly a first step toward a possible downgrade of America’s coveted AAA credit rating.
“We haven’t downgraded it. We just said, if nothing happens, we may have to,” said S&P chief economist David Wyss. He said a government default remains uncharted territory, “which is one reason why it’s not a good idea to hit the debt ceiling.”
“There’s reason to worry,” said Wyss. “But my best guess is that we sort of muddle through this. Cuts will be made, they’ll be too little too late, but at least they will be enough to maintain a triple-A rating.”
“It’s another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie,” said American University political scientist James Thurber. But he predicted that, as in the past, “there will be an accommodation. They will avoid a crash.”
Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury “even for a very short period of time” would have large “long-term adverse consequences for Treasury finances and the U.S. economy.” The analysis is being circulated on Capitol Hill by supporters of raising the debt limit.
“If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they’re crazy,” JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit.
House Speaker John Boehner and most other GOP leaders agree on the need to raise the debt limit — and don’t want to be held responsible for a new financial meltdown. Still, they want Obama to make more concessions on spending cuts than he has done thus far. That isn’t sitting well with liberal Democrats, who think Obama has already given too much ground.
One reason the two parties can’t find common ground: they can‘t even agree on what’s causing high deficits. Democrats mostly blame it on policies of George W. Bush: two wars, tax cuts that continue to benefit the wealthy and an expensive prescription drug program. Republicans see government spending as the culprit, particularly on Obama’s watch.
In fact, the main reason is the deep recession, which slashed tax revenues and led to hundreds of billions of dollars in recession-fighting spending by both Bush and Obama. The debt was $9 trillion in late 2007 before the start of the Great Recession, and it’s just a sliver under the $14.3 trillion limit today.
Even though GOP leaders say they want to avoid more economic chaos, there is a large crop of tea-party aligned Republicans threatening to refuse to raise the cap under almost any circumstance. Polls suggest a large percentage of Americans oppose raising the debt limit.
The debt limit has been raised ten times over the past decade. Obama voted against Bush’s debt-limit increase in 2006 as a senator, accusing Bush of “a leadership failure.“ Obama recently apologized for ”making what is a political vote as opposed to doing what was important for the country.”
In the following call to arms, conservative Lloyd Marcus exhorts all of us to vociferously oppose Obama, Progressives and their anti-American, anti-freedom and big government agenda. Being politically correct or silent will not allow us to obtain our goals. We must be fearless and relentless in our attempts to oust Obama and the Democrats in Congress (and elsewhere).
Tea Party David Vs. Two-Headed Goliath
Lloyd Marcus April 23, 2011
On the O'Reilly Factor TV show, Dennis Miller was asked his thoughts regarding the media's response to Obama's numerous flip flops. Miller said the media will report whatever Obama does in a positive light.
We patriots are well aware of the liberal media's love affair with Obama. And yet, for some reason, the reality of Miller's comment hit me hard right between the eyes. I thought, "Oh my gosh. This is not funny. Our country is in serious trouble."
Not only must we defeat the Obama administration, we must take on and defeat the liberal mainstream media as well; take on the two powerful well-funded entities committed to the fundamental transformation of America. Lord, help us!
Patriots, we can, will and must defeat this two headed evil Goliath. Despite the left's shock and awe public relations slanderous attacks on the tea party and our candidates, we took the House of Representatives. Thus proving, they can be beaten!
I am so sick of advisors cautioning us conservatives to walk on eggshells when dealing with the liberal media. It has even been suggested that we stop using the term "tea party" due to the negative image created by the media.
Patriots, even if we change our name to the "Happy Go Lucky Nice People Movement," we will still be targeted for destruction by the media. What part of they hate us and want us to fail do our advisors not understand? The liberal media is going to put a negative spin on whatever we say.
Now, am I advocating saying stupid provocative things? Of course not. I am advocating fearlessly and aggressively attacking Obama's horrific record. Call out the liberal media on their biased reporting. Stop allowing the Democrats and their media minions to set the rules of engagement. Patriots, the stakes are far too high to wimp out foolishly seeking approval from those actively pursuing our total destruction.
Again, I say, what do we have to lose by confronting the democrats and the liberal media? They are going to trash us regardless.
Yes, they will call you a racist. I say this in love: "Get over it." Throughout U.S. history many have suffered far greater and paid the ultimate sacrifice. Why? Because America is worth it.
Tons of articles have been written calling me a stupid self loathing n****r, an Uncle Tom, a tea party minstrel, a traitor, a sellout, and a clown. It all rolls off my back. I know I am on the right side. So, why should I care what evil stupid people say or think of me? But most of all, my strength and peace comes through knowing God is with us and America is worth it.
Like little David in the Bible, we must boldly confront the two headed Goliath, Obama administration/liberal media.
Why do you think Trump and Palin are doing so well in the polls? Both are boldly and unapologetically takin' it to Obama and are not kowtowing to the liberal media. Patriots are frustrated with Republicans pandering and trying to "play nice" with a Democratic Party and liberal media who are relentlessly and viciously attempting to kill us politically. The Democrats and the liberal media take no prisoners.
Rush Limbaugh says the Democrats and liberal media will tell you who they fear most by the intensity of their attacks. Who have been numbers one, two, and three on the Democrats' and liberal media's list? Answer: Donald Trump, Sarah Palin, and the Tea Party. Brothers and sisters, we can beat them!
How do we defeat them? In addition to ceasing to fear Obama and his liberal media co-conspirators, we must continue doing what we have been doing. Patriots must continue following their passion and using their gifts and talents wherever needed in our extraordinary divinely inspired Tea Party Movement.
We are blessed with great minds on our side; patriots are writing books, organizing and conceiving various strategies to take back our country.
While some lament that we lack a central leadership organization or charismatic leader, I am grateful for all of our numerous patriot groups and committed individuals. Each is driven to politically defeat Obama in its own way. Their spirit is the tea party.
Just as God's grace guided David's stone to topple Goliath, our stone of truth, honor, and freedom will hit its mark and bring down the two headed evil Goliath of the liberal media and the Obama regime in 2012.
Rep. Paul Ryan (R.-WI), Chairman of the House Budget Committee, has proposed massive, desperately need federal government spending cuts as well as tax rate reductions in his “Road to Prosperity”. Troves of empirical data support this approach – benefiting all except the demagogic Liberal politicians.
The vast majority of the Democrats still irrationally support continued unrestrained federal spending and high and increasing taxes, tax rates and fees. They never can have enough of other people’s money to spend. A larger, more controlling and intrusive government that knows best is their ideology. Control the masses, engender their dependency and buy votes by wealth transfer from those who work, particularly the higher wage earners.
Cal Vs. Krug
Investor’s Business Daily 04/11/2011
Taxes And Spending: House Budget Committee Chairman Paul Ryan's bold entitlement reform plan goes beyond taming spending. It recognizes that the history of cutting taxes vindicates Calvin Coolidge, not Paul Krugman.
Rep. Ryan has emerged as someone the country has been waiting for: a fearless, energetic politician with the guts to propose a detailed reform of the out-of-control, until-now-untouchable federal mandatory spending programs. Medicare, Medicaid and Social Security, with their annual automatic spending increases, now make up roughly 60% of outlays.
Some might find irony in Ryan ending up as spending hawk-in-chief, since back in the 1990s he was an aide to supply-side icons like Jack Kemp and Bob Kasten. Both were accused of caring too little about spending cuts as they fought for tax cuts to grow the economy and create millions of private jobs.
Today, after years of unchecked Democratic control of Congress and the White House, the problem of untamed government spending has become a runaway locomotive hurtling us toward a fiscal cliff.
The American public has reacted, spawning the populist Tea Party movement. And in this new environment, tax-cutting politicians are also spending-cutters.
But Ryan still recognizes, as did Kemp and Kasten, that low tax rates are key to restoring the greatness and vibrancy of the U.S. economy.
So when the New York Times' spending-addict columnist Paul Krugman launched his error-riddled attack on Ryan's plan last week, his first volley targeted not spending but Ryan's tax cuts. Ryan would bring both the individual top tax rate and the soon-to-be-highest-in-the-world U.S. corporate tax rate down to 25%.
According to Krugman, "Republicans have once again gone all in for voodoo economics — the claim, refuted by experience, that tax cuts pay for themselves" because they "would set off a gigantic boom."
It's so many years after Ronald Reagan's tax cuts produced the longest peacetime economic expansion in history — extending past the brief George H.W. Bush recession to the Internet revolution of the 1990s. One might have hoped that the losers of the tax-cut debate would, by now, have gone the way of the Berlin Wall.
But then, had history been heeded, the Krugmans actually would have been laughed off the political stage long before Reagan. John F. Kennedy knew when he bucked fiscal liberals in his party and pushed hard for cutting tax rates — including those on high incomes — that President Calvin Coolidge had proved tax cuts do exactly what Krugman says they don't: produce new jobs and fill government coffers with new revenues.
As Veronique de Rugy, senior research fellow at George Mason University's Mercatus Center, pointed out in a paper for the Cato Institute, "detailed Internal Revenue Service data show that the across-the-board rate cuts of the early 1920s — including large cuts at the top end — resulted in greater tax payments and a larger tax share paid by those with high incomes."
De Rugy found that as "the marginal tax rate on those high-income earners was cut sharply from 60% or more (to a maximum of 73%) to just 25%, taxes paid by that group soared from roughly $300 million to $700 million per year." From 1922 to 1929, real GNP grew 4.7% a year and unemployment fell from 6.7% to 3.2%.
What Krugman mocks as "trickle-down" was actually a tsunami of prosperity that expanded by 84% those making between $10,000 and $100,000 annually.
Taxes and spending can't be divorced. The Krugman way of big spending and high tax rates condemns future generations to never-ending government dependency.
Ryan's way not only reforms and saves entitlements. It saves us from the left's goal of a Europeanized American economy.
Included in the House’s proposed 2012 budget is a complete defunding of Obamacare by the Republicans and the providing effective alternatives with far greater flexibility and immensely less cost. This offers the long needed fiscal responsibility by the federal government as well as options that the voters want.
Plain. Simple. Transparent.
GOP Budget Proposal: 'Not a Penny' for Obamacare
Terence P. Jeffrey April 05, 2011
House Budget Chairman Paul Ryan, R.-Wis. (AP photo)
(CNSNews.com) - The fiscal 2012 budget proposal unveiled today by House Budget Chairman Paul Ryan (R.-Wis.) offers sweeping reforms in federal spending, including defunding and repealing the health-care law signed last year by President Barack Obama and converting the federal share of the Medicaid program into block grants to state governments.
The Republican proposal says one of its aims is “making sure that not a penny goes toward implementing the new [health care] law” enacted last year.
This includes repealing about $800 billion in new taxes that were built into the law.
The proposed Republican budget resolution lists as one of its “key objectives” that it “Repeals and defunds the President’s health care law, advancing instead common-sense solutions focused on lowering costs, expanding access and protecting the doctor-patient relationship.”
“There is no way for ‘experts’ in Washington to know more about the health care needs of individual Americans than those individuals and their doctors know,” says the proposal. “The new health-care law, rammed through Congress last year on a partisan vote, has taken the nation one step closer to this fully government-run system.
“The problems with this approach are already popping up all over the country,” says the proposal. “Health care costs continue to escalate relentlessly. The new law has aggravated the worst aspects of the U.S. health care system, without fixing what was broken. The country needs to move away from this centralized system, not towards it.
“This budget starts by repealing the costly new government-run health care law, saving roughly $725 billion over ten years by repealing the new exchange subsidies and making sure that not a penny goes toward implementing the new law,” says the resolution.
“Then, this budget goes further with reforms that make government health-care programs more responsive to consumer choice.”
On the health-care tax front, the resolution says: “The health-care law enacted last year contained roughly $800 billion in new taxes and tax increases--the result of dozens of changes to tax law that added complexity and unfairness to the code.” The proposal calls for repealing all of these new taxes and tax increases as part of repealing the entirety of the Obamacare law.
One of the new health-care reforms proposed by the GOP budget is converting the federal share of Medicaid—the federal-state program that provides health insurance to low-income people—into block grants to state governments.
The proposal says the GOP budget aims to: “Secure the Medicaid benefit by converting the federal share of Medicaid spending into a block grant tailored to meet each state’s needs, indexed for inflation and population growth. This reform ends the misguided one-size-fits-all approach that has tied the hands of so many state governments. States will no longer be shackled by federally determined program requirements and enrollment criteria. Instead, they will have the freedom and flexibility to tailor a Medicaid program that fits the needs of their unique populations.”
The GOP budget proposal notes that, according to the Congressional Budget Office, federal Medicaid spending would increase by $627 billion over the next decade under Obamacare, which increases the number of people eligible for the program.
Congressional Republicans are continuing a welcomed pattern of pursuing fiscal responsibility by the federal government – just what the voters charged them to do. Their political counterparts and their ideological antithesis, the Democrats, instead are plotting to sabotage talks on federal spending and speciously blame and attack the Republicans. Their philosophy is that there can really never be too much spending.
Prudently, the Republicans are resurrecting the idea of a balanced budget amendment in order to force restraint in spending and taxation. They are conflating ideas from the past with new ones to create a Constitutional Amendment that will facilitate this.
In the end, they will irrefutably show that they are the party of fiscal responsibility and restraint so that the taxpayers can keep more of what they earn and all of us can enjoy a higher standard of living.
Budget Balance By Law
Investor’s Business Daily 03/28/2011
Fiscal Policy: The balanced budget amendment idea has lain dormant for years. But Republicans are bringing it back. In a day when runaway spending is running away faster than ever, we need a mechanism to rein it in.
GOP leaders expect in the next two weeks to introduce to the public a balanced budget amendment that they believe will fix the profound debt and deficit problems that lawmakers have created for the taxpayers. Done correctly, a balanced budget amendment might do just that.
Congressional Republicans had planned to announce their intention to amend the Constitution in the middle of the month, but decided to wait for a few weeks until they could come up with a bill they could all support.
Once lawmakers have agreed to a piece of legislation, the GOP will go public with it — and the promise is the process will be highly transparent.
In other words, Congress won't have to pass the amendment before everyone finds out what's in it.
"We will have a genuine rollout," Sen. John Cornyn, R-Texas, guaranteed Human Events, "so the American people can know what we're doing and they can call, and email, and fax, and demand their senators and congressmen support it and create a true grass-roots effort."
While there are competing versions of the balanced budget amendment among Republican lawmakers, Human Events reported last week that the likely final version of the amendment will:
• Cap spending at 18% of GDP. Under President Obama, spending has soared to 23.8% (fiscal 2010) and 24.7% (current fiscal year) of GDP.
• Allow federal spending to exceed federal revenue only when two-thirds of both chambers approve a specific dollar amount beyond government income.
• Prohibit tax hikes to balance the budget unless two-thirds in both chambers vote to override the limitation. The significance of this can't be overstated. Any amendment that enforces a balanced budget without such a restraint would only make matters worse. A large number of Democrats and a few soft Republicans would be giddy at the prospect of endlessly raising taxes.
• Require increases in the debt limit to be approved by three-fifths of both chambers.
• Force the president to submit a balanced budget each year to Congress.
In return for allowing the debt ceiling to exceed its current $14.2 trillion threshold, the GOP is demanding that Congress vote on a balanced budget amendment.
Should Republicans get their vote, and two-thirds of each chamber approve the amendment, it will go to the state legislatures. It must then be ratified in three-fourths of the states to be added to the Constitution.
To get it through the House, Republicans will need help from Democrats. Their 49-seat majority does not reach the two-thirds level required to approve an amendment. But a balanced budget amendment bill introduced this year by Rep. Bob Goodlatte, R-Va., has 215 co-sponsors, with 13 Democrats among them.
The GOP will also need help from Democrats, who have 51 of the 100 seats, to move it through the Senate. With votes from all 47 Republicans, the amendment will have to attract support from 20 Democrats.
While the numbers would indicate that passage in the Senate is unlikely, the prospect isn't entirely hopeless. Human Events notes that there are four Democrats who voted for the balanced budget amendment in 1997 who still serve in the Senate.
Democratic Sens. Mark Udall — who has offered his own balanced budget amendment — and Claire McCaskill — who has pushed for a 20.6% of GDP cap on spending — are two others who might vote for another balanced budget amendment.
But even if it gets hung up in one or both chambers, Cornyn still believes that the balanced budget amendment will at least be a useful guide to politics.
"I think the voters would know," he told Human Events, "with very stark clarity, who is for a balanced budget and who is not."
Typically all anyone needs to know about where a politician stands on a balanced budget is party affiliation. But maybe the shocking behavior of the Obama spending machine will clear up some Democrats' thinking. For those who refuse to learn, there are the elections of 2012.
Rep. Paul Ryan (R.-WI) is taking his responsibilities as House Budget chief very seriously – just what the electorate wants but will clearly pay a high price for his diligence. He will soon unveil a concrete, effective plan for entitlement reform that unfortunately will be resoundingly attacked by the Democrats and receive little support from many Republicans.
Politics. Plain and simple.
The Democrats see this as an opportunity to sway voters who are addicted to entitlements and don’t want them reduced. Republicans are afraid that being fiscally prudent and responsible will cost them votes – and re-election.
This explains, in essence, why the issues of massive government spending with increasing deficits and debt have not been definitively addressed in the past.
Investor’s Business Daily 03/25/2011
Fiscal Responsibility: House Budget chief Paul Ryan will soon propose detailed entitlement reform. That he is sure to be savaged — even by fellow Republicans — shows how little Washington appreciates courage.
Ryan, a conservative Wisconsinite, will in early April unveil a budget that promises to be among "the boldest fiscal documents in history."
The Democratic Congressional Campaign Committee — the House Democrats' fundraising arm — already has a website, stopbenefitcuts.com, condemning the plan as "an extreme Republican scheme that will dismantle Social Security and Medicare as we know it."
At the Manhattan Institute's Reagan Centennial conference on supply-side economics last Tuesday, former Reagan and Bush administration economist Lawrence Lindsey said House Democratic leader Nancy Pelosi believes the GOP won the House because senior citizens abandoned the Democrats, and she wants them back.
"She is going to make the issue be, 'We are not going to cut your entitlements,'" Lindsey told the audience.
Ryan is also sure to be attacked by anti-spending purists like Sen. Rand Paul, R-Ky. But House leaders and key GOP senators, such as Senate Budget Committee ranking Republican Jeff Sessions of Alabama and freshman Marco Rubio of Florida, can be expected to give Ryan support.
The inevitable "dime-store Democrat" Republicans who will score political points by criticizing Ryan for his boldness are the most deplorable ones.
Based on past remarks, Ryan would change Medicaid to give governors freedom to tailor their states' plans to meet the needs of their particular low-income populations, in the spirit of the 1990s welfare reform.
Medicare would be reformed to give future beneficiaries a payment they could use to choose from a list of Medicare-approved plans. Social Security reform is not likely to take center stage in Ryan's plan.
Quibbles may be justified, but even hard-core Tea Party supporters should applaud Ryan when he makes history early next month by doing what no politician — not even Ronald Reagan — has ever done: get dead serious about cutting the spending of the most difficult-to-control programs of the federal government.
A basic tenet of the Republicans is that reducing government spending and the debt stimulate private businesses and result in a growing economy. This is just the opposite of the failed approaches of Obama and the Democrats (and the news media and liberal intelligentsia) who believe that a bigger and more massively spending government is the correct and only solution.
The last two years of abject failure of these Democratic policies have clearly shown that this approach does not work. Conversely, extensive research involving similar situations including in other countries has revealed that a significant reduction in government spending and in the level of debt will lead to real and substantial growth both short and long term.
This is exactly what several key Republicans are championing and what we need to support.
Spend Less And Owe Less To Make Economy Grow
Rep. Kevin Brady 03/23/2011
For the past two years, Americans have been told that the only way to economic recovery is more federal spending that drives up federal debt. The White House and Washington Democrats continue to cling to this failed economic model, refusing to listen to the voices of respected economists in America.
The job gap between Democratic promises and the results is significant. After nearly $5 trillion in fiscal and monetary stimulus, there are 2.3 million fewer jobs today than when the stimulus began. The White House fell more than 7 million jobs short of its year-end 2010 forecast, and our unemployment rate is far above the promised 6.9%.
The "government spending is the answer" crowd had their chance to jump-start the economy. They failed. It's time for a proven approach.
Congressional Republicans are determined to remove barriers to new jobs by reducing America's dangerous budget deficits and removing the uncertainty that deters businesses from hiring new workers.
Private business investment, not the government, is the engine of job creation in America. Comparing federal spending and private-sector job growth over the past 40 years shows little correlation between the two. Just the opposite: As federal spending grew, jobs on Main Street shrank.
Since 1971, when private business investment grew — that is, companies both large and small bought buildings, equipment, and software — jobs in the private sector grew. For job creation, there is no substitute for private business investment — not federal spending, not rebates, not "shovel ready" projects.
With nearly $2 trillion in capital on the sidelines, it's time to reject Washington-centric policies and instead encourage business investment to again flow naturally into America's economy.
A new report, "Spend Less, Owe Less, Grow the Economy," unveiled this week by the Joint Economic Committee Republicans, surveys economic studies examining countries with developed economies like ours that struggled with rising government debt. It proves that countries which reduce their government deficits through spending cuts can boost economic growth and job creation even in the short term.
Respected economists found 21 instances between 1970 and 2007 where 10 developed countries successfully reduced their debt-to-GDP ratio by 4.5 percentage points or more based predominantly or entirely on spending cuts. Countries that increased taxes were much less successful.
When government debt shrank through spending cuts, jobs grew. For example, neighboring Canada reduced total government spending by 12.8 percentage points of GDP between 1994 and 2006 and boosted its economic growth from under 1% to a robust 3.4% average. Sweden's economy was shrinking in the early 1990s. After reducing Swedish government spending by 11.4 percentage points of GDP from 1994 to 2000, Sweden's economy revived with growth averaging 3.4%. New Zealand experienced the same.
They are not alone. U.S. economists found 26 episodes in nine developed counties where reducing debt through spending cuts provided a large boost to economic growth in the first three years after their fiscal consolidation began.
That's the critical point: While most economists agree that reducing federal spending increases economic growth in the long term, this analysis of economic studies found that reducing federal spending through spending cuts boosts economic growth and job creation in the short term as well.
Two factors drove these pro-growth turnarounds. First, businesses no longer expected the government to levy large tax increases in the future to pay for excessive spending — so businesses stepped up their investment in buildings, equipment and software. Business investment, as we've shown, equals jobs. Second, families no longer facing higher taxes had higher expectations for permanent disposable income and became more confident to make major purchases for homes and autos.
According to the study, to maximize growth and job creation the spending reductions must be "large, credible and difficult to reverse once made." The cuts that produced the greatest economic growth include: right-sizing the government workforce, eliminating duplicative agencies and programs, eliminating transfer payments (subsidies) to businesses, and reforming and reducing transfer payments (entitlements) to individuals.
Moreover, the study found evidence of strong economic growth effects from reforming government pensions and health care to make them "sustainable and solvent," even when the reforms are phased in slowly and exempt current beneficiaries from change.
To preserve the bloated size of our federal government, President Obama and congressional Democrats loudly decry the risk of reducing America's deficits now. But they ignore the risk of delay.
As this study shows, ample real-life data prove that there are significant economic growth and job creation benefits from reducing spending and reforming entitlement programs to restore their sustainability for future generations.
It's time to stop listening to the economists and politicians who were wrong about the stimulus and instead take a different, proven path forward. To grow America's economy, it's time for Washington to spend less and owe less.
• Brady, R-Texas, is the top Republican on the Joint Economic Committee.
There are few serious players who are willing to responsibly address our country’s rapidly approaching fiscal apocalypse. Surely this doesn’t include Obama who submitted his 2012 budget with a $1.7 trillion deficit which he claims will help solve our crisis. Oh, and of course, his plan includes similar gargantuan deficits for as far as the eye can see.
The Democrats are outraged at even a $6 billion cut out of $3.65 trillion. This miniscule amount represents approximately 25 hours of federal spending out of an entire year (of 8760 total hours).
Many Republicans are seeking far more in budget cuts, $60 - $200 billion. Unfortunately, these amounts still fall far short of what is needed.
Who are these (brave) individuals who are willing to put everything on the line in order to save our nation from fiscal calamity? They are all Republicans and Conservatives and include such names as Senators Rand Paul, Mike Lee and Jim DeMint and Rep. Paul Ryan.
We need to give them our support as well.
Sen. Rand Paul introduces Five-Year Balanced Budget Plan with Senators Lee and DeMint
Senator Rand Paul unveiled his five-year path to a balanced budget, which includes cutting four federal government departments: Departments of Education, Energy, Commerce and Housing and Urban Development.
The proposal also calls for the repeal of “Obamacare,” leaves entitlements untouched, and he also said he is willing to make changes to the cuts, but there will have to be cuts elsewhere.
Rand Paul said:
“While official Washington is sitting on their hands and ignoring the ever-expanding deficit, I am offering a real plan to rein in spending and address the looming debt crisis. The only way we can balance the budget is if we have real leadership, and the President has abdicated his leadership on this issue. It’s time to take bold action to bring our country back from the brink, and I am proud to start the conversation on how we go about that.”
Via ABC’s The Note:
“There’s a lot of things in here that everybody could agree to, Republicans and Democrats, but nobody’s leading on the president’s side and on our side we felt we needed to put this forward to get the debate started, at the very least.”
“There’s an argument for every federal program up here… Nobody’s coming up here asking me for money that’s not for a good reason. But the alternative is that we get into a point of financial disaster where nobody gets any money,” he said.
Fellow Tea Party Caucus members, Senators Mike Lee and Jim DeMint were by Paul’s side when he introduced this bill. Both men supported Paul and called for Washington to get serious about the budget and to make cuts. The country is in fiscal jeaopardy.
Senator Mike Lee challenged anyone who criticizes Paul’s plan to present something better rather than verbally criticize it.
“There may be some in this town who will disagree with the manner in which we’re proposing moving toward a balanced budget over a five year period. That’s fine, that’s understandable, that’s what this town is about… but to those who may disagree with it, to those who might want to attack it. I would ask that they come up with their own five year plan.”
Senator DeMint echoed Lee and said that balancing the budget may require “letting things go” back to the state level.
“There are functions and departments at the federal level that need to be devolved to the states. Part of balancing the budget is restructuring and devolving federal functions back the states, local communities and people,” he said.
DeMint said he did not agree with “every particular thing in here,” but stressed the importance of balancing the budget.