The Des Moines Registerâ€™s Editorial on Monday, June 27, 2011 was titled â€œSteep budget cuts now could harm economyâ€.
Summary â€“ The Registerâ€™s Editorial group pointed us once again to the â€œnonpartisan fiscal agencyâ€, the Congressional Budget Office (CBO). They quoted the CBOâ€™s â€œdire warning about unsustainable federal deficitsâ€, but cautioned that the report also â€œwarned that steep cuts right now could make the nationâ€™s fiscal condition even worse by kicking the legs out from under the economyâ€. Also on June 27th, The Wall Street Journalâ€™s front page led off with an article titled â€œDebt Hamstrings Recoveryâ€. The WSJâ€™s Tom Lauricella notes â€œAround the globe, the inability of governments and households to reduce their debt continues to cast a shadow over Western economiesâ€â€¦â€Unlike the aftermath of typical recessions, simply lowering interest rates hasnâ€™t been enough to get growth back on trackâ€¦Quite the opposite has been the caseâ€¦ The lowered cost of borrowing has enabled individuals and government to delay taking measures to change the way they spend and save.â€
Comment on the DSM Registerâ€™s Selective Reporting â€“ I have noticed a pattern of inconsistency in the DSM Registerâ€™s and WSJâ€™s reporting. Many featured articles in the WSJ, arguably a far more competent source of economic analysis than Gannettâ€™s network, are minimized or never presented in the DSM Register. In addition to the â€œDebt Hamstringâ€ analysis, another recent example would be the study released by management consultant McKinsey. They surveyed 1,300 companies and found that one third (1/3) of them will â€œdefinitelyâ€ or â€œprobablyâ€ stop offering health insurance after 2014. Since candidate Obama guaranteed us that we would be able to keep our current insurance, this seems like a worthwhile piece of news. If the DSM Register featured it, I must have overlooked it. I wonder if the nonpartisan CBO is aware of it?
Analysis of the â€œSpend Now, Save Later Strategyâ€ – If we were in the position of China, over $3 trillion in foreign exchange reserves, I would not have a big issue with spending some of those reserves to shore up a short term slump in the economy. However Government debt as a % of GDP has increased from 30% in the early 2000â€™s to 35% by the end of the Bush presidency (increasing under both Republican and Democrat congresses). During the Pelosi-Reid-Obama era, that % is now approaching 60%. Meanwhile consumer debt and mortgage debt has more than doubled since 2000 (from $10 to about $20 trillion combined). Given the state of our debt, any increase in interest rates (almost a certainty the way the Fed has increased the money supply) will quickly multiply the consequences of our excessive debt. For my entire adult life I have heard politicians claim that we will â€œsave later, when the economy is strongerâ€. That day never comes. The Clinton-Gingrich era budgets were a nice anomaly but were not based on sustainable structural changes. The Register is wrong. We must cut government spending substantially and quickly.