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"Wrong Stimulus: More Debt and Higher Inflation"


Location: Washington, DC

Rep. Royce's oped appeared on the Flash Report:

With economic data pouring in, all indicators seem to be signaling an economic slowdown. Stemming from a troubled mortgage industry, the sluggish economy has become the most important issue to many in California. To address the growing concern, the Bush Administration and congressional leaders are touting their version of an economic "stimulus package" which would do more harm than good. The proposal I opposed in the House of Representative last week entails a spending increase of $150 billion. The Senate proposal is even more expensive, increasing several government programs.

Government spending must be paid for in some way. America is currently facing a budget deficit in the hundreds of billions of dollars. To cover such an outlay, the government would be forced to either increase taxes in the future or borrow the money by issuing $150 billion in new Treasury bonds - thereby absorbing money that would otherwise be going into private sector investment. China and other foreign governments are the largest purchasers of our government bonds and increasing our deficit means a greater reliance on the financing provided by these countries.

This enlarging federal deficit, in turn, puts upward pressure on prices, lessening the purchasing power of the dollar. The consumer price index recently showed that prices rose over four percent in 2007. The price of gold is also useful in determining if the threat of inflation is legitimate. From mid-2003 to the beginning of 2008, gold has more than doubled to over $900 an ounce. But one does not have to be in the market for gold to see a rising threat of a weakening dollar. The price of oil has quadrupled over the last five years (currently nearing $100 per barrel) and some economists have speculated that more than $50 of the per-barrel price - that is roughly half - comes from inflation and the speculation inflation triggers. If we are to continue the trend of economic prosperity of the last two decades, it is critical to keep inflation low. In a recent interview, former Chairman of the Federal Reserve Alan Greenspan noted, "One of the lessons of the last 20 years especially is that low inflation is the major contributor to economic growth overall, and that fundamentally, inflation must be suppressed."

The challenge of entitlement spending is daunting. Due to the increasing number of recipients and the shrinking number of workers paying into the system, the Social Security Trust Fund is projected to begin running deficits in 2017, and the Medicare Trust Fund is projected to be insolvent by 2019, not to mention Medicaid. According to the Heritage Foundation, in 2050, Social Security, Medicare, and Medicaid costs will have increased to 19 percent of GDP. And even if lawmakers eliminated every other government program to pay for these projected increases (everything from defense to border security) that still would not be enough to offset these ballooning entitlement costs. By continuing down the road of deficit spending, we make it less likely that a workable solution to these troubled entitlement programs is enacted.

The economic stimulus package put forward fails to address the underlying problems in the economy, nearly doubles the federal deficit, and it may have a lasting negative impact on the value of our dollar. By reducing the purchasing power of the dollar, this proposal threatens seniors' ability to live on a fixed income and hands future generations the tax bill through deficit spending. Given the current status of our entitlement programs, we need to rethink how we spend taxpayers' money. It is imperative that we balance our budget and get back to sound fiscal policy which promotes long-term economic growth. Unfortunately, Washington's quick fix voted on last week did neither of these.

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