You may not feel the financial tremors, but cracks are forming in the foundation of the world’s economies, which are built on the U.S. dollar — the world’s reserve currency. America’s rapidly growing debt burden threatens both the world economy and our own, which will crumble if we do nothing. However, decisive action can prevent that from happening on our watch.
To the noneconomists among us, the effect of a Federal Reserve rate cut is rather obscure and not something to worry about. However, in the recent election, the economy was the number one concern for voters, a sentiment heard across the nation — even in Washington. Three times in 2024, the Fed board lowered its rate in an effort to bolster a slowing economy. Those rate cuts failed in that mission.
With each rate cut, the stock market fell, and interest rates on 10-year U.S. Treasury bonds rose, the opposite response that is typically expected. This indicates that investors buying U.S. Treasury bonds are running out of faith in our government’s ability to stop the erosion of the American economy. When investors see risk in the economy, they either sit on the sidelines or demand more return in exchange for higher perceived risk.
In 2009, Greece faced a debt crisis that required a bailout from the European Central Bank to stave off bankruptcy. When that occurs, bond investors make money by anticipating economic collapse. We are seeing those first cracks in our own financial markets.
In addition, the increased cost of investment puts us all at risk due to the national security threat that it poses. Gone are the days of decadeslong military projects. Today, military technology is an innovation race, with technological advances happening at an ever-increasing rate. Keeping up with innovation now requires more costly investments by suppliers and entrepreneurs. Our national security and that of the world depends on America being on the leading edge of equipping our service men and women on the front lines, yet higher costs jeopardize innovation.
The cracks didn’t appear overnight. They are the result of political policy, government spending, and America’s increasing debt, which is growing by $2.5 trillion per year — a figure that represented the entire government budget as recently as 2000!
During the COVID-19 pandemic, emergency federal government spending exploded, but as the pandemic hysteria recedes into history, spending has not returned to pre-COVID-19 levels. History shows that we must keep our public debt less than the size of the economy in order to have a stable country. Today, our debt is roughly equal to our economy and growing rapidly.
There are clearly ways in which the government can save money and reduce spending, but with 62% of the federal budget going toward mandatory spending, things such as Social Security, Medicare, and veterans’ benefits, savings alone cannot save the day.
In response to the recent election, President-elect Donald Trump announced his effort to cut costs within the federal government. The Department of Government Efficiency will take on the challenge of finding “waste, fraud, and abuse” that everyone admits exists in the government but nobody has done anything about. Congress often finds it difficult to make spending cuts because, for every government program, there is a constituency lobbying to continue the spending. Too often, the question has become, “What can the federal government give me?”
DOGE alone won’t do. A three-pronged attack is necessary: 1) eliminate unnecessary departments, agencies, and programs, 2) weed out waste and fraud, and 3) grow the economy. As the economy grows, individuals, companies, and even the government benefit in the form of higher wages, profits, and tax revenue. Encouraging innovation, beneficial tax rates, and reducing the amount of oppressive regulation can all make American industry the powerhouse it has historically been.
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I believe that America’s best days are ahead, but we must first repair the cracks in our financial foundation. At the ballot box, Americans expressed their confidence in Trump to restore the American financial foundations and set us on a path to future peace and prosperity. Congress must do its part, too.
Jan. 20 cannot come fast enough.
Keith Self is a Republican representing Texas’s 3rd Congressional District in the House.