This is from a CBO report (PDF):
One impact of rising debt is that increased government borrowing tends to crowd out private investment in productive capital, because the portion of people’s savings used to buy government securities is not available to fund such investment. The result is a smaller capital stock and lower output and incomes in the long run than would otherwise be the case.
The effect of debt on investment can be offset by borrowing from foreign individuals or institutions. But additional inflows of foreign capital also create the obligation for more profits and interest to flow overseas in the future. Thus, although flows of capital into a country can help maintain domestic investment, most of the gains from that additional investment do not accrue to the residents.
Which, of course, is what I’ve been pointing out – each dollar borrowed by Uncle Sam is a dollar not available for private enterprise. Thus, less money available to start or expand companies, develop new products, hire new workers. Worse than that, the money borrowed by government has to be paid back by the tax payer with interest – so, not only do we have less money now, we’ll have even less money in the future.
Added to this is the fact that by having foreigners finance a great deal of our national debt, we have become forced – in a very real sense – to turn our mining, manufacturing and farming capacity over to them in order to give them the means of earning the profits with which to finance our debt. That factory an American used to work at? Its in China now so that Uncle Sam could borrow money in order to continue to finance such things as the Department of Labor.
The ultimate solution to this is to balance our budget, pay off our debt and then forbid the United States government from issuing bonds. They are ultimately destructive of American prosperity and American liberty. Balancing the budget won’t be easy – heck, why sugar-coat it? It will be extraordinarily painful – but it must be done.
Starting with a 25% across-the-board spending cut, plus selective shut downs of agencies not tasked with national defense, law enforcement, health care and direct aid to the poor (to make it clear to you liberals – most of what is done at Energy, Labor, Education and Commerce will have to go). If that doesn’t prove enough to balance the budget, then we’ll have to go for tax increases – yes, even in a recession.
Once balanced (and thus on the path to paying off the debt), we forbid the issuance of new debt and start living within our means. We do that, and we’ll rather swiftly return to being an economic power house as debt no longer soaks up America’s wealth…and as foreigners fall all over themselves to park their money in the one global economy not at risk of default.
This will hurt. A lot. But we Americans have gone through worse times in the past and if we come together and help each other out we can do this. And, we must do this – it is get our house in order, or perish as a nation. It is really that serious.
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