Democrat Debt Bomb

President Obama and his policies are creating unprecedented debt loads for America. He says that this is necessary to correct the current economic recession. But that will not work. Things will get worse.


Since Obama policies even over the next 4 years will be felt well into the future, we are today creating debt loads that, in relation to the trajectory of our economy, will saddle us for decades to come. After all, if a family spends on its credit card, it has to pay off that debt somehow even if its income continues to decline. And as income declines, that debt looms larger and larger. This is what is happening with Obamanomics. He is drowning America in debt which is the socialist plan – to starve the private economy.


It is important to look at economic growth paths in considering annual deficits (annual shortfalls in revenue versus spending) and debt (the overall amount of money owed by the US government). In 2004, America had an overall debt of $4.3 trillion in a total $11.6 trillion economy, i.e., the overall accumulated debt of the US government at the time was 38% of Gross Domestic Product ($4.3 trillion is 38% of $11.6 trillion). Today our debt is $11.3 trillion out of a GDP (total economic output) of $14 trillion, or a whopping 80%… and rising, including all debt (private and intragovernmental).


The average post-World War II debt of the US has been 43% of GDP (excluding intragovernmental).


In World War II itself, massive spending on the military pushed out national debt from 40% of GDP to 109%. We spent so much on the military that our debt exceeded our annual production of national wealth. Annual military spending during World War II topped out at the equal of about $5 trillion a year in today’s money, or ten times more than we currently spend on the armed forces.


That WWII military spending ended the depression of the 1930s and set off the postwar economic boom. And Democrats may use this as a model for their increased spending demands. But that is 180 degrees wrong. Because in terms of its impact on the overall economy, Democrats’ social spending is the least productive form of government expenditure while military weapons spending is the most productive, contrary to Democrat myth.


Why? Because military spending requires the production of hard goods, requiring skilled labor and technologically advanced workers and engineers, thus spurring the highest form of economic growth at the highest wages.


These military goods cannot be made elsewhere, can be made only by order of the US government, and would not exist without government demand. Military technology also has the unmatched benefit of provoking advances in technology that benefit all of society. This has been true throughout history. Today every single technology that powers the world from computers to lasers to avionics to electronics, to metallurgy, radar, composites and so forth were in one way or another incubated in the American military.  The internet itself started as a Defense Department project.


So don’t let the liberals tell you that military spending is a big waste. Social spending is. If you give someone $1,000 in food stamps, that does not create new jobs at the grocery store. And of course it solves other problems, but ones that could be solved in other ways.


In fact it is social spending that always can be replaced by other activities such as requiring that people support themselves, eliminating the need for welfare, food stamps, etc.; privatizing government functions that then can be achieved at much lower costs; or lowering costs through private-enterprise solutions like price competition for health care, or, private/religious charities. But Democrats always seek to promote unnecessary and wasteful government spending by urging dependency, creating more bureaucracy, or by thwarting free-market solutions to economic problems.


By 1974, the debt to GDP ratio dropped to 23% but increased to 49% by 1994. An observer might note that the level rose during the Reagan/Bush years which is true. Because of big increases in military spending in the Reagan era. More crucially, however, Democrats in that era still had many programs already entrenched, they continued to dominate the Congress and expanded those programs, and continued to add programs as the economy grew. This is classic socialism – if there’s money to be had in an economic expansion, Democrats will tax it away and spend it. 


By 1999, Andrew Cuomo and the Clinton administration had even managed to shove through the NINJA home loan program. That meant that the government, through the Federal National Mortgage Association (Fannie Mae) would buy from banks the loans (the taxpayers would assume the risk) made to poor and even middle-income people with No Income and No Job. This is what caused the economic collapse in the name of the Subprime Crisis. NINJA polluted the whole financial system with trillions in rotten paper.


The reason that the debt ratio has remained flat or declined during much of the postwar period is that economic growth dwarfed increased spending, despite Democrats’ desperate attempt to drown us in debt. Since 1946, inflation-adjusted debt has grown by 84% while the economy has expanded 429%.


But things are changing. America’s prosperity is falling in a competitive global economy as good-paying manufacturing jobs leave for more hospitable climes that have lower taxes, lower regulation and less environmental restraints. And prosperity is falling at precisely the same time that Obama is piling on huge debt. In just one year, Obama is adding more debt than in all 8 of the Bush years. And there is no end in sight.


If we continue to tax more to keep the debt tamed – rather than relying on growth to absorb the debt – people will find less and less incentive to work and the economy will decline further. This is the path we are on. And as poor people become more and more dependent on the government – as the Democrat party is assuring with more and more generous handouts – those poor people never will work again, becoming permanent burdens on the economy. This already has been happening for decades.


Current debt figures are frightening. Here are two lines from a recent Fox News story:


The Congressional Budget Office predicted deficits over the next decade will add up to $7.1 trillion, nearly $3 trillion more than previously projected. The White House Office of Management and Budget earlier increased its 10-year-budget projection to more than $9 trillion, an increase of about $2 trillion. 


So we are looking at trillions  as if they were just billions. And these figures will push our national debt way above our national GDP, leaving our economy in a capital-starved no-growth socialist mode like Europe‘s.


Because Obama has changed the whole debate. Because to a leftist, ten billion here and ten billion there are no big deal. And that is how we are going to be drowned. So even while Obama himself said last Spring that we are out of money, that is just his act. He knows exactly what he is doing.


And many of these projections are based on overly-optimistic growth figures. If the economy continues stagnant or declines, which is going to happen under Obama policies, the debt figures are going to be worse.


Americans have quickly realized what Obama is up to, and are going to start making electoral changes in the 2010 and 2012 elections. Republicans suddenly are looking like the wise ones after 8 years of Bush-bashing by the media. When we start to have a Reagan-like revival with restrained spending and taxes, Democrats will find their brief moment in the sun slowly fading to black as America decides that prudent, thrifty and sensible economics – the kind we practice in our own lives – is the road to national prosperity.


Please visit my website at www.nikitas3.com for more. You can print out for free my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.