WASHINGTON – A respected leader on financial policy said Wednesday that the dollar will lose its leading position in the monetary market if Congress fails to solve the “fiscal cliff” crisis.
The budget challenges the country is facing today are far worse than in 1990 when the federal funds rates were above 8 percent, versus close to zero today, said Pete Domenici, a Republican senator from New Mexico from 1973 to 2009 and the former chairman of the powerful Senate Budget Committee.
“Contrary to last time, I truly believe that this time we do have a chance to not only run off the cliff but that we will break the bank, that the monetary policy of the world will go upside down,” Domenici said. “The very strong leading position that American dollars will be put in jeopardy.”
Reflecting back to the 1990 budget reduction deal signed by President George H.W. Bush, which cut spending by more than $300 billion and raised revenues by $159 billion, Domenici blamed President Barack Obama’s Medicare policy as one of the reasons for a skyrocketed deficit today.
“(Had we) been bolder on fundamental changes like Medicare and Social Security,” he said, “we might not be experiencing problems that we face today with these unsustainable program costs.”
Contrary to Democrats’ beliefs of generating revenue from increasing tax rates, Domenici said the same goal could be achieved from cutting government spending. That kind of plan worked in 1990, he said, because two thirds of the $500 billion agreed to in the 1990 budget deal was contributed by spending cuts. One third was from increased fees and revenue.
Republican John Sununu, the White House chief of staff in President George H.W. Bush administration, also said the divided Congress should not be blamed for the budget issue.
“There are a lot of folks who like these kind of agreements to take place in a climate where there’s no politics. It will never happen,” Sununu said. “There’s nothing wrong having differences and commitments in different philosophies.”
However, Democrat David Obey, who served in the House from 1969 to 2011 and was the appropriation committee chairman, said the “larger deals” favored by Republicans “over-promise and can’t deliver.
“In the past 40 years, we’ve never achieved a balance in budget in this country, except when revenue were equal to 19.8 percent of GDP (Gross Domestic Product),” Obey said.
Obey also said he wouldn’t define success by whether or not Congress can achieve a balanced budget through negotiation.
“If you can get the deficit down to low enough percentage of GDP, so it’s not going as fast as the economy over time, that is a highly acceptable result as far as I’m concerned.”