Senator Mike Lee (R)
How should Congress and the President address the “fiscal cliff?”
In the shadow of the “fiscal cliff,” little attention has been given to the fiscal avalanche that will occur if we continue down our current path. Unpredictable and far more devastating than the “fiscal cliff,” the fiscal avalanche will occur when markets and creditors lose confidence in on our debt, leading to a spike in interest rates. The cost of servicing our debt will begin to explode, hindering our ability to meet federal spending priorities. Deficit reduction efforts in Washington will be too little, too late. The “fiscal cliff” will look like a dip in the road in comparison.
Net interest payments on the debt in thirty years could total as much as $3.8 trillion- more than the total government spending for 2011. Even a modest 1 percent interest rate increase would effectively wipe out all the deficit reduction from last year’s Budget Control Act. We would have to shoulder the burden of fiscal restraint without any actual deficit reduction — all pain and no gain.
If the current rate of government spending and borrowing continues we could experience a market meltdown like that of Greece, requiring massive and immediate cuts to entitlements, defense and virtually every discretionary program just to avoid a credit default. As Harvard economist Kenneth Rogoff said, “By the time [markets] lose confidence, it’s too late: the option to tighten from a position of strength has evaporated.”
President Obama’s solution, to raise taxes on the wealthy, ignores structural spending challenges. His most recent budget proposal adds almost $11 trillion to the national debt over ten years in spite of the revenue increase. Our country needs fiscal restraint, spending reform and economic policies that promote investment and jobs. Kicking the budget can down the road will make required reforms increasingly more difficult and ultimately more painful.