A Staggering Budget Gap and a Reluctance to Fill It

By PETER S. GOODMAN
NYT

No one argues that the staggering deficits run up by the American government in a bid to rescue the economy are desirable, healthy or even sustainable — not if the national debt continues to swell at its current pace. But considerable debate centers on when and how vigorously to start easing off Washington’s borrowing habit, with substantial risks at both extremes.

Pull back on government spending now, the argument runs, and condemn an already hobbled American economy to years of mass joblessness and anguish. Keep spending with abandon, goes the counterargument, and invite the possibility of a debt crisis with spiking interest rates, crippling inflation and a plunging dollar.

Those arguing for tighter federal spending to contain the budget deficit contend the nation has already borrowed so much money that the people who have lent it may get spooked and abruptly refuse to supply more.

China’s central bank and other foreign creditors might curb their purchases of American government savings bonds, which finance so much national spending. That would force the Treasury to pay higher interest rates to attract other buyers of its debt, lifting interest rates throughout the American economy.

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