Consequences of government spending begin to surface

June 3, 2011

A flood of rough economic news out this week has renewed worry among Americans, businesses, and lawmakers: is the country headed for a double dip recession? Yesterday The Washington Post said manufacturing is slowing. The Wall Street Journal reported Tuesday that economists are downgrading their economic growth estimates for the second half of 2011. That same day, Americans learned housing prices dipped 4.2 percent in the first quarter of 2011, after dropping 5.1 percent the previous year.

All of this bad news has consequences: consumer confidence is at its lowest point since November and the stock market fell 280 points Wednesday on economic fears.

Today’s news that a modest 54,000 jobs were created as the unemployment rate edged up certainly won’t do anything to allay concerns.

And to top it all off, Moody’s sent a stern warning to Washington, saying it might downgrade the United States’ credit rating if lawmakers are unable to reach an agreement on the debt ceiling in the coming weeks. This comes not long after Moody’s lowered the outlook on the country’s AAA rating from stable to negative.

For months now we’ve argued that uncertainty in Washington – over spending primarily – has caused businesses to hit the pause button on investing in and growing their companies. These recent economic indicators are the proof of the chilling effect Washington has on the private sector.

In addition to breeding uncertainty, budget deficits and high debt have serious economic consequences: higher taxes, higher inflation, and higher interest rates to name a few. Greece is a prime example. If the size of the U.S.’s debt burden hasn’t yet caused Washington lawmakers to act quickly, this week’s terrible economic news should. The flow of negative data will only continue until Congress gets its fiscal house in order.

We know this is a lot to take in. For a look at the lighter side of government spending, don’t miss today’s Friday Funnies.

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