It’s time for the nation to control its impulse to borrow

It’s time for the nation to control its impulse to borrow

In an apparently encouraging sign that deficits do matter, two key members of the Barack Obama administration’s economic team talked this week about the need to reduce the federal budget deficit .

On Sunday, Treasury Secretary Timothy Geithner said that the deficit is too high, but added that the administration’s priority is now economic growth and job creation. But Geithner also acknowledged that the nation won’t “see real recovery until it’s led by the private sector, by businesses.” One way for government to encourage business expansion is to curb its own appetite for borrowed money.

A more emphatic statement on the need to curb the deficit came Tuesday from Peter R. Orszag, Obama’s director of the Office of Management and Budget, who said in a speech that the White House economic team is considering “a range of options” so the president can keep his promise to reduce federal budget deficits by the end of his term to half of the level he inherited.

Given that the fiscal 2009 budget, which spanned the last four months of the George W. Bush administration and the first eight months of Obama’s, was $1.4 trillion, cutting that in half over four years is the least the administration can do. Reducing the budget deficits at a steady pace would still mean Obama would add about $4.5 trillion to the national debt. The debt would stand at more than $15 trillion.

Borrowing at those levels is extraordinary, and would represent the first time the debt has climbed past the nation’s gross domestic product since World War II years.

Growing like Topsy

At the end of President Jimmy Carter’s presidency, the debt stood at about 35 percent of GDP. It grew to 65 percent at the end of the Ronald Reagan and George H.W. Bush presidencies, dropped below 60 percent by the end of Bill Clinton’s two terms and rose to 80 percent at the end of the Bush-43 presidency.

It stands today at nearly $12 trillion, which represents $38,000 for every man woman and child in the United States.

Historians and economists will debate for decades whether bailout and stimulus spending at the end of the Bush administration and the beginning of the Obama administration was well spent. But there will be little debate about the dire economic consequences of continuing to add to what will become an unsustainable debt. Debt service will continue to take an increasing bite out of the federal budget. As the nation borrows more, it will dry up capital for private businesses. As it prints more money, it will deflate the dollar.

Congress is beginning to take more serious note of the implications of growing annual deficits and a burgeoning national debt, and none too soon.

Obama already has a lot on his plate, but he, Geithner and Orszag are going to have to come up with a budget next year that assures Congress, the nation and the world that the United States is taking its addiction to borrowed money seriously.