Sen. Lee: After fiscal cliff comes fiscal avalanche

OPINION-EDITORIAL – Sen. Mike Lee offers this op-ed regarding the problems that will arise if Congress does not act to reduce our national debt; after the fiscal cliff comes a fiscal avalanche:

While Washington is preoccupied with the so-called fiscal cliff, little attention has been given to the fiscal avalanche that will occur if we continue down an unsustainable long-term path, causing markets to turn sour on United States debt and leading to a spike in interest rates. Unlike driving off a cliff, which you can see coming and make last-minute adjustments to avoid, we cannot predict with any reasonable certainty when the avalanche will break. If it does, there will be little anyone can do to prevent its devastating effects.

No one knows just how long the U.S. can continue to accrue massive debts before lenders lose confidence. Delaying significant fiscal restraint for yet another year will send the wrong signal to financial markets and may serve as a tipping point that could lead to disastrous consequences for our economy. Such a euro-like crisis would make the fiscal cliff look like a dip in the road.

If U.S. creditors decide that our debt is no longer the safest form of investment available, demand for Treasuries will drop, interest rates will rise and the cost of servicing our debt will begin to explode. Paying interest on our national debt will quickly crowd out spending on almost all other federal priorities. At that point, any deficit reduction undertaken by Washington — including the sorts of spending cuts or tax increases being discussed today — will be too little, too late.

The Congressional Budget Office projects that under the most likely policy scenario, in 30 years, net interest payments on the debt could total $3.8 trillion in today’s dollars. That is more than total government spending for 2011. Realistically, we are unlikely to maintain the same level of borrowing and spending for the next three decades without a significant change in interest rates for our debt. Even a modest 1 percentage point increase next year in effect would wipe out all the deficit reduction included in last year’s Budget Control Act. In other words, we would have to shoulder the burden of fiscal restraint without any actual deficit reduction — all pain and no gain.

It could get much worse.

If our failure to make significant structural changes in government spending leads to borrowing conditions like those of Greece, we could experience a meltdown of financial markets and broad economic upheaval from which we may never recover. Such circumstances would require massive and immediate cuts to Social Security, Medicare, national defense and virtually every discretionary program to avoid a credit default.

Most Americans will find this scenario difficult to believe, but make no mistake — if we do nothing, the avalanche will break suddenly and without warning. As Harvard economist Kenneth Rogoff recently said, “By the time [markets] lose confidence, it’s too late: The option to tighten from a position of strength has evaporated.”

President Obama says his solution to our deficit and debt is to raise taxes on the very wealthy, but his approach does almost nothing to address the structural spending challenges we face. Over 10 years, the president’s most recent budget, which includes his tax hike, still adds almost another $11 trillion to the national debt.

Equally ineffective is the suggestion by some senior Senate Democrats that we increase spending with another stimulus program. Failure to achieve robust recovery is not the result of too little government spending. Rather, excessive government spending, intervention and regulation have stifled growth and incited fear over what will be required to bring the budget into balance.

What our country needs most is fiscal restraint, structural spending reform and sound economic policy to promote investment and jobs. Simply continuing to kick the budget can farther down the road will make these required reforms increasingly more difficult and ultimately more painful. Such continued delay risks arriving at a point when we no longer can borrow and have no choice but to painfully slash government spending overnight.

Is Washington up to the challenge?

So far, the answer has been no. That must change soon. If the fiscal avalanche breaks before we change course, the result will be disastrous.

Sen. Mike Lee is a member of United States Senate representing Utah. The opinions stated in this article are his and may not be representative of St. George News.

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6 Comments

  • ken November 26, 2012 at 2:17 pm

    All hell the obstructionist!

  • Karen November 26, 2012 at 6:44 pm

    Maybe someone should tell Mike Lee that we just had an election and his point of view lost. Next election hopefully he will lose.

  • Sean November 27, 2012 at 12:54 pm

    I hope that those who gave previous comments would go back and actually read the article before they jump in on attacking the author.
    I agree with Senator Lee. The government needs to cut up its credit cards and operate on money they have, not on money they want to take from we the people.

  • Roy J November 27, 2012 at 8:15 pm

    Is the Senator willing to lead by drastic example and voluntarily take a pay cut? Say 1/2 of what he is being paid? That wouldn’t kill him would it? And I know alot of people who might take this talk of cutting government expenses more seriously if he or other government employees did.

  • ken November 27, 2012 at 10:09 pm

    I hope that Sean would go look at Lee’s record of obstructing everything Obama and or democrats have tryed. We all know that the GOP said after losing in 2008 that Obama would be opposed at every turn. Yes the government needs big cuts but since neither party has a clue its no wonder we are in trouble.

  • Buster November 28, 2012 at 9:09 am

    The United States is not like Greece. Those who continue to compare and conflate the two lack a solid understanding of the core principles at work. This scare-monger should not be a member of the Joint Economic Committee because it’s apparent he has no understanding of economics.

    Perhaps Sen. Lee could learn something from people who do understand.

    http://www.forbes.com/sites/realspin/2012/05/30/the-united-states-is-not-greece/

    http://www.cepr.net/index.php/blogs/beat-the-press/krugman-is-wrong-the-united-states-could-not-end-up-like-greece

    http://www.huffingtonpost.com/robert-creamer/why-the-united-states-is_b_1094933.html

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