WASHINGTON (CN) – Republican and Democratic lawmakers traded blame Wednesday for the weak economy and crushing deficit detailed in an ominous Congressional Budget Office report released a day earlier. Answering Republican critics on government spending, Massachusetts Democrat Jim McGovern said, “I find it ironic that the same people that drove this economy into a ditch are now complaining about the size of the tow truck.”
Sinking appeal of U.S. treasuries, soaring debt, and predictions that the recession will cause more pain in the future than it has in the past, gave House Budget Committee members reason to be concerned.
CBO Director Douglas Elmendorf called the budget outlook “daunting” during his testimony before the committee, and warned that “United States fiscal policy is on an unsustainable path.”
The proportion of debt to economic output is expected to reach 60 percent this year, with Tuesday’s budget office report estimating that 2010 will see a $1.35 trillion deficit – driven by government stimulus efforts – and that an expected decade of continued deficits would bring the national debt to $21 trillion by 2020, a loan that would cost $723 billion just to service.
The annual cost of servicing today’s debt is $207 billion.
Republicans decried the current level of government spending but steered clear of calling for specific cuts. They characterized Obama’s calls to reduce spending over the long run as inadequate.
Democrats defended the stimulus efforts as necessary and painted Republicans as hypocrites, pointing to the balloon in spending under the Bush administration.
All the lawmakers expressed concern over the deficit.
Ranking Member Paul Ryan, from Wisconsin, attacked the spending under the Obama administration. “It is time to get serious about Washington’s insatiable appetite for increased spending,” he said, and California Republican John Campbell seemed to agree, calling the spending level unsustainable.
Democrats were quick to hit back. North Carolina Rep. Bob Etheridge replied, “It also was unsustainable last year, and the year before that.” And McGovern noted that while government spending rose 3.5 percent under former President Clinton, it rose 8.4 percent under former President Bush.
California Democrat Xavier Becerra followed up. He said that when Bush took office in 2001, the independent budget office calculated that the economy would produce a $5.6 trillion surplus over the following decade- a sum that could have paid off the then $5 trillion national debt. This predicted surplus has now morphed into a $4.7 trillion deficit.
Despite prior Republican criticism of the stimulus package, Elmendorf from the budget office said that government stimulus efforts have increased economic production by as much as 3.5 percent and that without them, the recession would have lasted longer and the economy would have shed more jobs.
The budget office report says the recession may have ended in mid-2009, although the recession has yet to be declared as officially over.
Texas Republican Jeb Hensarling tried a different approach. He held up newspapers announcing Obama’s plan to freeze non-defense discretionary spending for three years and remarked that 83 percent of the budget is exempt from the freeze.
Indeed, the $250 billion in expected cuts over the next decade is dwarfed by government spending, which exceeded $3 trillion in 2009 alone.
“I fear the president’s plan is about newspaper headlines and not budget baselines,” Hensarling said.
Ohio Democrat Marcy Kaptur asked if Republicans enacted a spending freeze of any kind during the eight years while Bush was in office, joined much of the time by a Republican Congress. Elmendorf replied that he didn’t know of any cases.
Elmendorf said that it is now up to lawmakers to find a solution to the daunting budget outlook. He added that only big changes will be effective in resisting the momentum of the slipping economy.
He said, “more pain from this downturn lies ahead of us than behind us,” noting that while the economy could see job growth within the next few months, unemployment is only expected to return to its 5 percent pre-recession level in 2014.
To explain the prediction of a slow recovery, Elmendorf pointed to a lack of the traditional post-recession demand in houses, and noted that working hours have been on a downward trend. Before businesses hire, they will likely increase the hours of their current employees, Elmendorf said.
Elmendorf also warned that as debt grows, U.S. treasuries make up a greater portion of investor portfolios, squeezing out other investments. But investors won’t just hold U.S. treasuries. “At some point, they will refuse to hold them or will insist on much higher interest rates,” he said, and noted that it is widely understood that such a change is happening now.
Such a loss of investor enthusiasm over U.S. treasuries could pose a significant problem, with lawmakers expected soon to hoist the debt ceiling by nearly $2 trillion to $14.3 trillion.