04.30.2012 1

Debt officially larger than the economy

Obama and Jimmy Carter CartoonBy Robert Romano — Feb. 9, 2012. You can put it in the history books now. That was the day the $15.6 trillion national debt surpassed 100 percent of the $15.4 trillion Gross Domestic Product (GDP).

Based on the latest data by the Bureau of Economic Analysis, the economy just grew by $142.2 billion in the first quarter, or an annual rate of 2.2 percent. That compares to data from the U.S. Treasury showing the national debt grew by $359.6 billion at an annual rate of 9.4 percent.

That’s at a rate of $3.95 billion in new debt every day, compared with just $1.56 billion in economic growth. This year, at that rate, it will expand by $1.4 trillion. $14 trillion over the next ten years.

“No nation can long sustain itself when it takes on debt at nearly 5 times the rate its economy grows,” remarked Americans for Limited Government President Bill Wilson.

Wilson noted the tepid 2.2 percent rate in the first quarter came well below the Obama Administration’s rosy projection of 3 percent growth for the year.

“In 2011, they projected 3.1 percent growth and only got 1.8 percent. As their growth projections prove to be way off once again, revenues will fall short of expectations, and the national debt will continue to grow that much faster,” he explained.

That, coupled with foolish administration and congressional policies underfunding the Social Security program by $95 billion this year, explains why there will have to be another vote in Congress to raise the $16.394 trillion debt ceiling.

Ironically, Republican leaders in Congress reportedly were attempting avoid a controversial showdown on the payroll tax issue in an election year. But by voting for the payroll tax deal, they guaranteed the mother of all controversial issues will likely come up this summer in the midst of the heated election battle.

But, this time, Congress will likely just sweep the issue under the rug and pass another gargantuan debt ceiling increase, not demanding any spending cuts or significant in return. After all, they caved last time. All they got was that stupid committee.

Which is just as well, really. Congress has not been able to reduce the debt at all since 1957, despite numerous claims of having “balanced” the budget since then.

Plus, the only way we can even meet our debt obligations right now is with a printing press. The Federal Reserve holds over $1.66 trillion in U.S. treasuries, with hundreds of billions in more purchases guaranteed for the foreseeable future.

That is because we are spending so much that not even financial institutions with unlimited credit lines from the central bank and sovereigns the world over have enough to lend to us. So we have to print in order to fill the gap.

In that context, it is no wonder the U.S. lost its gold-plated Triple-A credit rating with Standard & Poor’s, despite Treasury Secretary Timothy Geithner’s assurances that we would not.

“Absolutely not,” Geithner had said in an interview with ABC News’s “This Week” about the prospect in Feb. 2010, adding, “That will never happen to this country.”

Except it did. The establishment was wrong. Just like it was wrong about the positive effects of trillions of dollars of fiscal and monetary stimulus. Said ALG’s Wilson, “Unemployment is still above 8 percent, which the Administration said would never happen if the ‘stimulus’ was passed. Growth is still quite sluggish, only coming in at 2.2 percent in the first quarter, despite promises of a V-shaped recovery.”

So much for that.

Wilson said the weak economy would hurt Obama’s reelection chances: “[With] almost $4 a gallon for gasoline, food prices once again increasing, home values continuing to drop into a double-dip recession, 1 in 2 recent college graduates cannot find full-time work to pay off hundreds of billions of student loan debt, the election outlook for Obama must look quite gloomy.”

“This is Jimmy Carter all over again — only worse,” Wilson concluded. That’s actually true. When Jimmy Carter was running for reelection, the gross debt was just $907.7 billion or 32.5 percent of the $2.785 trillion GDP.

All of which gives Obama the unique honor of being the most awful president since Carter was run out of town on a rail. Come to think of it, that may not be a bad idea. Voters should consider that before we reach any more depressing milestones that threaten to bankrupt the entire country.

Robert Romano is the Senior Editor of Americans for Limited Government.

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