November 30, 2008

Deficit spending worries bailout critics

Unprecedented deficit spending being used to battle the U.S. financial downturn could be planting the seeds of the next crisis, critics say.

Record amounts of deficit spending will be necessary to pay for initiatives to lower mortgage rates, stimulate consumer loans and steady banking conglomerate Citigroup. Including loan guarantees and other potential commitments, the potential long-term cost of the government's varied economic rescue initiatives could reach $8.5 trillion, the Los Angeles Times reported Sunday.

Analysts told the newspaper next year's budget deficit could easily break the $1 trillion barrier after soaring to a record $455 billion last year. Both the Bush administration and U.S. President-elect Barack Obama say the deficits are necessary to rescue an economy on the brink of collapse, although Obama has said long-term deficit reduction is a priority.

There's a huge risk of another economic crisis, a debt crisis, once we get on the other side of this one, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the Times.

We're mortgaging our future to a certain extent, but we're trying to do things that give us a future, countered David Stowell, a Northwestern University finance professor.