THE MESSAGE OF DOLLAR DISDAIN
October 14, 2009
Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America's financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it's no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth, says economist Judy Shelton.
A return to sound financial principles in Washington, D.C., would signal that America still believes it can restore the integrity of the dollar and provide leadership for the global economy. But for all the talk from the Obama administration about the need to exert fiscal discipline -- the president's 10-year federal budget is subtitled "A New Era of Responsibility: Renewing America's Promise" -- the projected budget numbers anticipate a permanent pattern of deficit spending and vastly higher levels of outstanding federal debt, says Shelton.
Even with the optimistic economic assumptions implicit in the Obama administration's budget, it's a mathematical impossibility to reduce debt if you continue to spend more than you take in, says Shelton:
- Obama promises to lower the deficit from its current 9.9 percent of gross domestic product to an average 4.8 percent of GDP for the years 2010-2014, and an average 4 percent of GDP for the years 2015-2019.
- All of this presupposes no unforeseen expenditures such as a second "stimulus" package or additional costs related to health-care reform.
- But even if the deficit shrinks as a percentage of GDP, it's still a deficit because it adds to the amount of our nation's outstanding indebtedness, which reflects the cumulative total of annual budget deficits.
By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion -- as compared to $11.9 trillion today. To put it in perspective:
- U.S. federal debt was equal to 61.4 percent of GDP in 1999.
- It grew to 70.2 percent of GDP in 2008 (under the Bush administration).
- It will climb to an estimated 90.4 percent this year and touch the 100 percent mark in 2011.
- The projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019.
Source: Judy Shelton, "The Message of Dollar Disdain," Wall Street Journal, October 14, 2009.
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