The challenge for Mr. Obama will be introducing fiscal prudence into a Washington culture that has shown great affection for encouraging the government to live far beyond its means.
Under President George W. Bush, politicians of both major parties voted to increase the national debt by roughly 2.5 times. At the dawn of Bill Clinton's presidency, government debt was $4.3 trillion, and increased by only $1.4 trillion in eight years. Now the debt limit has been lifted to $11.3 trillion -- and the debt itself has ballooned to over $10.8 trillion.
That doesn't count future Social Security and Medicare payments -- yes, those dread unfunded mandates -- that a Federal Reserve official last year estimated to be an astounding $99.2 trillion, or $1.3 million per family of four.
This is no mere academic exercise. As the national debt grows, more and more tax dollars must be used to pay interest to our creditors. We already pay over $450 billion a year in interest on the national credit card; without that debt to pay off, income taxes could be almost 40 percent lower.
Our biggest foreign creditors are China ($696.2 billion in Treasury bonds) and Japan ($578.3 billion). If they become worried about our ability to pay them back without devaluing the U.S. dollar, they could demand higher interest rates. That would cost taxpayers more in interest payments and, perhaps, sharply raise rates on 15-year and 30-year mortgages. Think of what that would do to housing prices.
The New York Times reported last month that China is losing its taste for U.S. debt and is "starting to keep more of its money at home, a move that could have painful effects for American borrowers."
Yet there's already talk in Washington of a second "stimulus" package, and Mr. Obama himself refused to rule out the possibility last week. Some economists, like Yale University's Robert Shiller, believe at least one more round of legislating is "likely." The Obama administration's challenge will be to choose which is more important: more deficit spending, or today's stated goal of fiscal responsibility.