Debt burden holds back recovery
Washington’s fiscal irresponsibility has had a tremendous effect on the nation’s economy and Americans’ economic prospects. For years, Congress has authorized spending far more than what money was available. This has, of course, saddled the country with trillions in debt.
Now with the economy struggling to rebound from a devastating recession, the national debt is hampering our already fragile recovery.
The Wall Street Journal explains:
The Federal Reserve is just days away from ending one of the major steps to aid the U.S. economy—but the effort has done little to solve the original problem: The government and individuals alike are still heavily in debt.
The fundamental problem is that reversing the trend of piling on the debt requires some combination of cutting spending, growing income or the economy, and inflation. But wage growth is stagnant and home prices, which underpin much of the debt problem, are still falling.
Meanwhile, in a vicious circle, businesses aren’t hiring or investing because they know consumers are tapped out. Banks, for their part, are hoarding cash, being stingy with new loans.
On the fiscal front, the outlook is worsening. The U.S. government debt-to-GDP ratio will hit 100% this year, up from 62% in 2007, according to the IMF.
The core of Europe is seeing fiscal balances worsening as well. Germany’s debt-to-GDP ratio is expected to be 80% this year, up from 65% in 2008. France will reach 88%, up from 64%, according to the IMF.
The Congressional Budget Office last week forecast that the amount of government debt will reach its highest point relative to the size of the economy since just after World War II.
While Americans struggle to find jobs and make ends meet, Washington has been spending the country deeper and deeper into the red. Congress must institute a culture of responsible spending. Reversing the practices that got us here in the first place is the surest way to allow the recovery to take hold.