Opinion: How Washington’s $7.5 trillion deficit spending spree is bankrupting America

AP File Photo/J. Scott Applewhite / Darkened skies are seen over the U.S. Capitol in Washington, D.C., and that may be the same forecast for the American Dream if spending is not reduced.

Polls show Americans are pessimistic about the economy, with inflation as the top concern. But do they understand where this inflationary surge came from, and why Washington's addiction to government spending threatens the country's future prosperity?

That may sound hyperbolic, but consider the numbers. The sum of new spending authorizations between 2020 and 2022 was a staggering $7.5 trillion — over $57,400 per household.

According to the Committee for a Responsible Federal Budget, roughly $700 billion (less than 10% of the total) was directed toward public health in the wake of the COVID-19 pandemic. Instead, the spending spree focused on welfare expansions, cash handouts and subsidies for a variety of special interests.

Badly flawed, Keynesian "stimulus" spending escalated even after the economy had stabilized in the summer of 2020 and was the definition of inflationary.

The Federal Reserve's role is often overlooked. The Fed purchased a massive volume of Treasury securities from 2020 through 2021. This not only created money out of thin air but also served to provide artificial demand for federal debt at low interest rates.

American families have paid and continue to pay a steep price. Inflation spiked in 2021 and 2022 with sky-high deficit spending one of the primary drivers.

Households have lost thousands of dollars in purchasing power as a result. While the rate of inflation is now lower than a year ago, prices are still rising faster than before the pandemic. Families are struggling to catch up to the 17% price hike already baked into the system.

The Fed eventually responded with a dramatic increase in interest rates and reduced the monetary supply. While that helped bring the rate of inflation down, it also had serious consequences.

This was especially the case for mortgages, as the combination of high list prices and higher interest rates pushed the dream of home ownership further away for millions of Americans. Mortgage rates increased almost 2.5-fold, and total interest on a new mortgage on a median home is over $300,000 higher than before.

The higher interest rates that increased the cost of servicing the now mountainous federal debt will mean hundreds of billions of dollars per year of drag on the economy for decades to come.

As the Fitch credit agency explained when it downgraded U.S. creditworthiness in August, there is no light at the end of this tunnel. Driven by the unchecked growth of Social Security and Medicare spending, annual deficits could soon exceed $2 trillion per year indefinitely.

Incredibly, Washington still refuses to act.

The so-called Fiscal Responsibility Act highlighted this reality. The package was loaded with tens of billions of dollars in budget gimmicks so Congress could pretend there would be spending reductions without actually reducing spending.

The Biden administration's newest spending request is another way to dodge the slightest amount of budgeting.

By claiming spending on Ukraine and natural disasters shouldn't count toward spending caps, the administration and many congressional leaders are demonstrating they have no problem with tens of billions in additional deficit spending.

It seems increasingly unlikely legislators will choose the path of fiscal sanity on their own. Fortunately, there is a somewhat recent example of turning things around.

The tea party movement, which began as a reaction to bailouts and overspending, led to spending restraint and deficit reduction in Washington. Pandemic-era spending undid this progress, but the fact remains public pressure can push Congress in the right direction.

It is crucial for Congress and taxpayers to take federal budgeting seriously as soon as possible. The alternative is the destruction of the growth and prosperity at the core of the American dream.

David Ditch is a senior policy analyst at The Heritage Foundation's Hermann Center for the Federal Budget. Richard Stern is the center's director.

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