Are plans to raise US debt ceiling cause for alarm?
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When Congressional Democrats last week pushed to lift the U.S. federal debt ceiling by nearly two trillion dollars, Republicans blasted the move as fiscally irresponsible and voiced concern over the long term consequences of a level of deficit spending not seen since World War II.
So on Monday House Majority Leader Steny Hoyer indicated that lawmakers would seek to pass a temporary borrowing limit to last through 2010.
Still, fiscal conservatives fret over what they view as runaway spending and Congress' silence over how to deal with the growing deficit.
Federal borrowing is legally capped at 12.1 trillion U.S. dollars, and President Barack Obama's administration says the Treasury will be unable to cover Washington's spending if the figure is not increased soon. The current limit is expected to be reached by month's end.
"We haven't got any clear indication that there's a strategy to control this," said Desmond Lachman, resident fellow at the American Enterprise Institute. "We hear the Obama administration paying lip service but there is no clear indication of how to prevent the U.S. from getting into increasing debt."
Such is the sentiment of a number of Congressional Republicans and those who fret over a federal deficit projected to reach 9 trillion dollars over the next decade.
Democrats blamed the George W. Bush administration for starting the deficit spending and said they had no choice but to continue the spending in the face of the economic meltdown they inherited.
Dean Baker, co-director at the Center for Economic and Policy Research, said the debt was still manageable in a stable economy such as the United States and one that made up nearly a quarter of the world's economy.
Baker pointed to Japan as an example that a mature economy could handle high levels of debt and continue to function. Japan, whose debt to gross domestic product (GDP) ratio stands at around 200 percent, was still able to manage its debt without incurring any serious problems, he said.
The real problem, Baker said, was curbing the rapidly growing costs of health care. "So, really a discussion about the deficit should be a discussion of health care," he said.
Indeed, some government figures indicate that if Medicare and Medicaid costs rise at the same rate for the next four decades as they have over the past four, those programs will grow from 5 percent of GDP to 20 percent by 2050.
But opponents of Obama's health care reform said the president's vision of change would likely add to the deficit.
Robert Johnson, associate director of economic analysis at Morningstar, an independent research provider, said there was much political gamesmanship surrounding the push for a debt limit increase, with Republicans warning of the harsh consequences of continued deficit spending and Democrats contending the need for it.
"The last thing they want to do is to shut down government spending just when the economy is starting to get better," he said, adding that Republicans' concern over the long-term consequences was a positive development.
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