Upcoming legislation in the House of Representatives will raise the debt ceiling to more than 12 Trillion Dollars – about three-quarters of the Nation’s gross domestic product (GDP).

This is an absolutely dangerous precedent and beyond risky. It also sets the precedent and potential for increasing the ceiling to 100% of GDP, at which point the economy would likely collapse and the government could fall.

With the government borrowing 75 cents of every single dollar being created in the country by commerce, taxes must rise to meet the debt obligations – to such a point that the incentive to conduct business is reduced with the consequence of reducing the tax base and prompting the government to default on its debt obligations. Since many of those are to foreign nations, including China, the collapse could cause another international economic collapse far worse than the 1930’s Great Depression.

Even if the debt obligations are stretched out longer than usual, the cost will increase and our great-great-great grandchildren will be paying for our present follies.

This Instittue supported the concept of TARP, but in the form of the Capital Purchase Program (capital injection), authoring some of the revised language of the TARP legislation and at the time, proposing the Invest in America program to take the $700 Billion of TARP and use $245 Billion for bank investments and $210 Billion for small business investment to stimulate job creation.

Today, it turns out the cost of bank investment was about $250 Billion and we now need to spend about $200 Billion for small business growth. Hmmm. Maybe Congress should have enacted our September 2008 plan?

One House legislative director recently commented to us “Had we [Congress] enacted the proposals of The Epicurus Institute in 2007 and 2008, our banks would be lending, jobs would have stablized and new businesses would be getting funding through loans and IPOs”.

Government spending is getting far out of control and reaching a dangerous point as many economists are noting. The economic stimulus package passed earlier in 2009 has had little positive impact on economic growth.

“Green shoots” a colloquial term for signs of economic growth have shown only minor impact, while global economic problems such as the crises in Dubai and Greece are acting as lawnmowers to those green shoots.

While many in government are claiming success in stabilization of the economy, in fact they are ignoring many serious consequences of the on-going crisis. The true economic picture is far more bleak. Far fewer people are in the markets today and bank deposit accounts are down considerably. As of this date 140 banks have failed and as we predicted, there will likely be 150 or more by year’s end and hundreds more next year… and these are but a few of many signs of continual weakness.

Caution is urged in government spending.

Tagged with →