Fox Business: A Major Threat to the US Economy - Our Debt is a Dark Cloud Over a Sunny Outlook

Article by Paul Winfree & Victor Xiao in Fox Business

There is no shortage of good economic news in America. More than 21 million jobs have been added since 2009. Wage growth is improving. Fewer people are having to take a second job to make ends meet. Unemployment rates are at or near historic lows for blacks, Hispanics, women and veterans.

But a dark cloud hovers over this sunny economy. Debt held by the public has risen to 78 percent of Gross Domestic Product (GDP), and the Congressional Budget Office (CBO) expects it to hit 95 percent within a decade.

These high levels of federal debt are contributing to lower levels of economic growth which has been sluggish since coming out of the recession.

Yes, it is true that interest rates are historically low, and the Federal Reserve's Open Market Committee approved a quarter-point rate cut at the Sept. 17-18 meeting, putting the overnight funds rate in a target range of 1.75 percent to 2 percent.

Troubling phenomenon

However, to depend on rates staying low in order to finance more government spending is both short-sighted and incredibly dangerous. There is no guarantee that borrowing will continue to be cheap. With the Federal Reserve’s balance sheet at unprecedented levels, the inevitable unwinding of its assets will cause interest rates to rise again.

Additionally, even if borrowing remains cheap for the foreseeable future, deficit-financed spending is only sustainable and sensible if the government directs its funds towards productive activities. That is a very big if.

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