Obama: Four More Years!

Obama's Massive Debt Bodes Ill For Long-Term Growth

Posted 06/19/2012

Economy: Anyone who's checked the latest jobless data knows President Obama's massive stimulus failed to stimulate anything but $5 trillion in new debt. Now it turns out this debt could hamper growth for years to come.

The study, published recently by the National Bureau of Economic Research, looked at 26 episodes in advanced economies since the early 1800s where gross public debt levels exceeded 90% of GDP for at least five years.

What they found was alarming: When countries run debt levels that high, average growth rate is significantly below low-debt years — 2.3% on average vs. 3.5%.

Worse, the study also found that once countries run debt up to that level, it can take years, if not decades, to bring it back down. In fact, 20 of those high-debt episodes lasted more than a decade, and the average duration was 23 years.

Combine the two, and what you get is "a massive cumulative output loss," according to the study's authors.

Where does that leave the U.S.? Thanks to Obama's fiscal policies, the U.S. gross public debt is now more than 100% of GDP. And, according to the Congressional Budget Office, under current policies there's no end in sight.

And what does Obama have to offer? Absolutely nothing. In fact, his latest budget plan called for adding $143 billion in new deficit spending next year and more than $1 trillion over the next decade.

At the same time, Obama has provided zero leadership on entitlement reform. Instead, he's simply fed the entitlement beast through ObamaCare, which if left in place will add more than $1.7 trillion in costs over the next decade.

Obama appears to be taken in by liberal economists such as Paul Krugman and Larry Summers, who say the country should borrow more, since interest rates are so low. As Krugman put it: "This is a time for the government — which can borrow at negative real interest rates! — to be spending more."

But the NBER study found this to be pure folly, since the adverse growth effects of high debt occurred even with low real interest rates, which the authors conclude "certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it."

Bottom line is that Obama's policies — which already produced the worst recovery in history — could bequeath the country decades of substandard growth.