Fact Check: Are Trillion Dollar Deficits a Problem or Not?
(RightWing.org) – Liberal Democrats are rallying around massive programs like a federal jobs guarantee, the Green New Deal, Medicare for All, student loan forgiveness, and free college education. Combined, the cost of these programs easily exceeds $100 million.
However, the cost of these programs and the whopping deficit that comes with it isn’t an issue if Liberals are in charge of Congress and the White House. They are on record saying massive deficits are not a problem.
Currently, the deficit is $22 trillion and growing, and that’s without the addition of new liberal, big government programs. Social security, Medicare, and other social welfare programs are driving up the national debt all by themselves. In addition, tax cuts without reduced spending also contribute to the deficit.
This week, the Congressional Budget Office (CBO) said that without structural reforms to government spending, annual deficits “will forever remain above $1 trillion dollars.”
If the government keeps growing at this rate what are the potential consequences? Are far-left Liberals right? Do multi-trillion dollar deficits even matter?
On Tuesday, the CBO said the federal government will spend $1 trillion more than it collects in 2020 and that it will do so every year, indefinitely.
While the federal deficit is expected to grow in difficult economic times, the fact that it’s remaining high during a strong economic expansion is bothersome. Long-term, it could have an enormous impact on wages, interest rates for cars and homes, as well as job prospects.
Over the last year, a growing number of far-left-wing Liberals have said that policymakers are not properly thinking about deficits. In fact, they say that a deficit isn’t even a big deal and shouldn’t be considered when factoring in big government spending programs.
Rep. Alexandria Ocasio-Cortez (D-NY) said earlier this year that balancing the books shouldn’t be a “larger part of our conversation” when it comes to government spending.
Democratic candidate for president Sen. Elizabeth Warren (D-MA) said that it “doesn’t make any sense” to find savings to offset spending increases. She took it a step further and said that it’s “clear that we need to rethink our financial accounting for the United States.”
The argument liberals are now making is that the government creates money, therefore the government doesn’t have to borrow money. It can spend as much as it likes.
But is that true? And, do deficits really matter?
- The government does not create money. The private sector creates money and the Federal Reserve ensures that there is enough money in the marketplace to sustain growth, curtail recessions, or pull money out of the market to maintain the value of the dollar — all through the banking system.
- The government can print money but if abused enough, it can devalue and significantly harm the economy.
- The US debt is owned by foreign governments on the “good faith and trust of the United States” government. If the deficit grows too high, the interest on the debt increases as the owners of US debt become concerned about our country’s ability to repay it. Instead of paying down debt, the government is simply paying the growing interest.
- The economy will suffer as federal deficits gradually crowd out private investments. This could have a profound impact on the job market and broader economy.
- Rising deficits require the government to pay higher interest rates to debt owners, reducing the income of US households through either higher taxes or higher costs of goods and services.
While the deficit doesn’t matter much in the short-term, in the long-term it can have dire consequences on the economy and consumers. Credit card, car loan, and mortgage rates will eventually rise. In the 1980s, mortgage interest rates were as high as 18% — today they are under 4%.
Do we really want to go back to that economy?
Today, Liberals believe that deficit doesn’t matter — they will change their mind when the public has to start paying for it.
By Don Purdum, Freelance Contributor
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