Failure to Resolve Mounting Debt and the Fiscal Cliff

Last Friday the Indiana Bankers Association hosted its second annual Indiana Economic Outlook Forum. The keynote speaker was Dr. Stephen Happel, emeritus professor of economics at the Arizona State University W.P. Carey School of Business. I have heard Dr. Happel speak many times before. I appreciate that he always distributes the latest economic statistics to his audience, and he consistently presents new observations pertinent to the current environment.

On Friday, Dr. Happel compared all U.S. presidents of the past 60 years, as measured by growth in the gross domestic product (GDP), with the average holding at 3.3 percent. The best performance came during the Kennedy-Johnson era at 4.8 percent. The worse performance came during Barack Obama’s first term at 0.4 percent. The next worse performance was under the administration of George W. Bush at 2 percent. Along with GDP, it is important to put the national debt in perspective. Between 1776 and 2008 — a period of 232 years — the United States mounted $10 trillion of debt. Under President Obama’s first term — a period of four years — the United States added another $6 trillion of debt. That is astounding to me.

These statistics are at the center of the gridlock we experienced in the recent debate over the fiscal cliff. They will again be at the forefront of the debate that will occur over the next couple of months, as Congress and the president seek agreement on determining where to cut government expenditures, how to address the debt ceiling, and ways to fund the government beyond the mid-March expiration date of the existing continuing resolutions.* The government has been operating on continuing resolution for the past three years, because Congress has failed to pass a budget in that period of time.

Currently many Republicans in the U.S. House of Representatives contend that continuing to run up the debt is worse than defaulting on that debt. Thursday and Friday of this week, the House Republicans will meet in Williamsburg, Va., to hear presentations on what will happen if an agreement is not reached.

Please believe that failure to reach an agreement is a distinct and real possibility. It is imperative that we all pay attention to this debate and negotiation. The outcome may well define our economic lives for years to come.

*A continuing resolution is defined in the U.S. Senate glossary as: “Legislation in the form of a joint resolution enacted by Congress, when the new fiscal year is about to begin or has begun, to provide budget authority for Federal agencies and programs to continue in operation until the regular appropriations acts are enacted.”

One Response to Failure to Resolve Mounting Debt and the Fiscal Cliff

  1. Mike Cahill says:

    Joe, I have taken for granted the lifting of the debt ceiling after a no-doubt rancorous debate. The fact that certain members are calculating the cost of not raising it definitely raises the stakes of the short term. Incredibly important. We should make sure that our representatives hear our voices.

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