The White House has just announced its proposed budget for fiscal year 2011, with a projected deficit of a staggering $1.27 trillion.  Last year’s budget estimated a $1.17 trillion deficit, but the actual number now appears to be $1.60 trillion. Applying that same likely growth from projection to actual deficit, we are looking at a federal budget deficit closer to $1.74 trillion this year.

The size of the deficit is unconscionable and unsustainable. As a nation, we now owe more than $12 trillion, a number almost as large as the entire GDP of the United States.  Even worse, we are adding to this deficit at a rate of more than 10 percent of the GDP—an alarming rate that most economists consider dangerous for any economy.

To finance our deficit, we print money and spend it—or we borrow money and spend it.  When we print the money, we set the stage for massive inflation, which will occur as soon as the economy revives. When we borrow the money, we place a lever in the hands of citizens and governments of China and other nations, now our largest creditors (surpassing the 50 percent mark two years ago). It is morally wrong to spend money now and expect our children to pay the price—and it is hazardous to give to foreign sovereigns the tools to destroy our economy if they decide to “call in” their loans.

It is our responsibility and duty to stop this. We must not condemn the next generation to economic ruin because we lack the courage to do what must be done now. As President Reagan famously said, “If not us, who?  If not now, when?”  If we didn’t borrow another dollar, it will still take more than 300 years just to pay back what our country already owes.

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Today, Politio reported the the Congressional Democrat Leadership will increase the debt ceiling by $1.8 trillion. There was a time, in Democrat land, that Robert Rubin was thought to be an oracle. During the Clinton years, the Treasury Secretary was so highly regarded that his economic plans were dubbed Rubinomics.

Mr. Rubin, you see, despised long term deficit spending because he believed that it led to higher interest rates over time and therefore a bad economy.  It did so, in his view, because deficit spending required excessive government borrowing which adversely competed with and reduced private borrowing which, in turn, led to higher interest rates and “crowded out” private borrowing and investment.

Beyond that, according to Rubin: “ongoing deficits may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing cycle among the underlying fiscal deficit, financial markets, and the real economy.”  On the other hand, by eliminating deficits, the economy will improve because of lower interest rates, increased confidence and investment.

Following his lead, the Democrats raised tax rates which (a) led to the Republican takeover of Congress in 1994 because they all stood against tax increases, and (b) led to the highest tax burden in US history, and therefore (c) led to the recession of 1999 – which ultimately led to (d) lower revenues.

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