In 2001, Alan Greenspan warned that we might have too little debt. A $5.6 trillion surplus was projected that would have ensured our long term status as the world’s economic superpower while covering the health and retirement costs of the 77 million baby boomers about to retire.
This strong economy was primarily attributable to two factors 1) confidence in federal fiscal responsibility and 2) a technology boom that greatly benefitted Northern Virginia, home to the second largest technology workforce with the highest pay in the country. President Bush’s father began responsible fiscal management by agreeing to a compromise in 1990, whereby all new spending and tax cuts would be balanced with spending decreases or tax increases. This “pay-go” principle was incorporated into President Clinton’s balanced budget bill in 1993 and under Treasury Secretary Bob Rubin’s leadership, set us on a path to a balanced budget and sustained prosperity.
Today we find our economy in a precarious position-perhaps the worst since the Great Depression. The American workforce has lost jobs in each of the last 6 months-65,000 in May and in June. The federal budget deficit has hit historical highs of over $400 billion for six of the last seven years. The stock market has lost nearly 2 trillion in value, and more than a million mortgage holders have lost their homes with another 3 million about to follow. The median family income has declined over the last seven years. With gas prices approaching $5 a gallon and oil at $140 a barrel, there is little relief in sight.
We also now have the greatest income disparity between the top 1 percent and the bottom 90 percent as has existed since 1928. Five hedge fund managers last year made more than 9 million working households.
The reasons for our current unsteady fiscal situation include 1) President Bush’s abandonment of the Bush 41/Clinton “pay-go” policy in 2001, so as to avoid funding the cost of the 2001 and 2003 tax cuts.
2) The cost of the Iraq war is now $650 billion with an estimated long run cost of $3 trillion. There has been a 9 trillion fiscal reversal from $5.6 trillion projected surplus to a $3.5 trillion projected deficit. The cost of the tax cuts and the Iraq War is almost equal to the last 7 unprecedented high annual deficits.
3) Gas prices which were $23 a barrel when we entered Iraq in 2003 are now about $140 a barrel contributing to trillions of lost dollars in the stock market and causing real financial hardship for all businesses and families.
4) The subprime mortgage meltdown where millions of homes were sold by predatory lenders represented by mortgage brokers who were unprofessional in getting people to sign up for loans that they couldn’t repay, then securitized and sold to large financial institutions–resulting in collapses such as have occurred with Bear Stearns and IndyMac Bank.
The road back from the fiscal brink includes sacrifice from the American people-the message that should have been delivered after 9/11 instead of a national call for more shopping at the mall. Encouraging greater personal savings and aligning our tax policies to better reflect the transportation, health care, and environmental needs befitting a great nation are vital. Only then can we begin gaining control of our spiraling debt-the surest way to secure a strong economic future for our country.