WASHINGTON — As
Congress and the Bush Administration negotiate a $700 billion plan to shore up
credit markets by purchasing “troubled assets,” The Concord Coalition urged
them to heed the lesson of Wall Street’s failure: corrective actions are more
effective and much less costly if taken in advance of a crisis rather than in
the face of one.
WASHINGTON — As
Congress and the Bush Administration negotiate a $700 billion plan to shore up
credit markets by purchasing “troubled assets,” The Concord Coalition urged
them to heed the lesson of Wall Street’s failure: corrective actions are more
effective and much less costly if taken in advance of a crisis rather than in
the face of one.
Concord said that in
dealing with the immediate crisis, policymakers should limit taxpayer exposure,
maximize transparency of any new obligations and develop a debt repayment plan
to ensure that the short-term emergency measures do not result in further
deterioration of the long-term budget outlook. More fundamentally, however,
policymakers must acknowledge and begin to address the fact that the federal
budget is itself suffering from the same over-reliance on debt and lack of
transparency that doomed the institutions they are now rushing to rescue. If
they fail to do so, the eventual and inevitable consequences for the economy
are no less stark.
“It’s fine to hope
for the best, but we should budget for the worst. While the intent of this plan
is to recoup much, if not all, of the initial cost to taxpayers there are no
guarantees. The value of the assets to be purchased is highly uncertain. What
we know for certain is that the government will incur a huge upfront cost,
immediately adding to the debt and immediately incurring compounding interest
payments. All of this will be layered on top of a deficit expected to exceed
$500 billion next year, and an overall fiscal policy that is unsustainable.
Meanwhile, we are borrowing increasing amounts from abroad to make up for our
inability to make crucial budgetary decisions. The answer to every problem in
Washington seems to be more debt. That simply cannot go on. Given the
uncertainty of the return on this $700 billion of new borrowing, and the
daunting challenges already confronting the fiscal outlook, Congress should
adjust budget policy either though phased-in spending cuts or tax increases to
ensure against any permanent fiscal deterioration,” said Concord Coalition
executive director Robert L. Bixby.
The Concord Coalition
further stressed that once the immediate threat has passed, and the new
administration and Congress start their work next year, their agenda must
confront the nation’s long-term fiscal challenges.
“Washington can
normally act in the face of a crisis. We
don’t need to relearn that lesson. A
more fundamental issue is whether we can learn from the current crisis and
finally break the pattern of routinely ignoring long festering problems. It is
no secret that our nation is entering an unprecedented and permanent
demographic transformation to an older society and that we are doing so with steadily
rising health care costs and steadily falling national savings. This is a
dangerous combination for the future health of the economy. And yet, nothing
in the budget process requires Congress to review the current-law outlook
beyond the next five years, much less take corrective action. If we learn from Wall Street’s mistakes, we can act more effectively, with less pain, and
more time to prepare the public for difficult but necessary choices. If
we don’t change course, the federal government itself will be in need of a
bailout,” Bixby said.
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The Concord Coalition is a nonpartisan, grassroots
organization dedicated to balanced federal budgets and generationally
responsible fiscal policy. Former U.S. Senators Warren Rudman (R-NH) and Bob
Kerrey (D-NE) serve as Concord’s co-chairs and former Secretary of Commerce
Peter Peterson serves as president.
Jonathan DeWald
