Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts. It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt. Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.) That means America will owe more than all the goods and services it produces in one year. When you owe more than you make, isn’t that a sign you need to change course? The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow. This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause, “catastrophic damage to the economy.”
I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding. America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds. Right now, the Fed is creating $75 billion a month to help finance government operations. This is met with a shrug, like it is no big deal. But, it is a big deal, and it comes with a significant downside—inflation. Sure, there is deflation in housing, but everything else is going up in price.