Obama Warns Of "Unsustainable" Deficits And Spiraling Interest Rates

The good news is that President Obama is apparently deeply concerned about our level of deficit spending and the reliance on foreign governments.

Bloomberg: “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

The bad news is that Obama’s solution most likely revolves around higher taxes, a strategy that’s not only likely to depress growth, but one that probably won’t close the gap as much as the government thinks it will.

As it is, the government has all kinds of new spending increases on the way in areas like healthcare, the second stimulus, the further bailouts, etc. Any plans to cut spending appear to be pretty minimal. Now granted, it’s not like the rich can’t afford to pay higher taxes. Paying what they did under the Clinton administration isn’t some form of socialism or class warfare. But the economy’s changed in big ways, and one of those has been the violent collapse of many of the formerly rich (aka: high tax bracket folks). And though the government will keep looking for places to hoover up dollars (offshore earnings, carried interest, cap & trade, a traders tax) it’s unlikely to add up to enough, especially as each one has its own depressing effect.

Still, we appreciate the concern. Our question is: If (if) the tax revenues don’t come in as planned, will there be any willingness to cut spending so as not to mortgage our children’s future?

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