- The Washington Times - Tuesday, December 7, 2004

Foreign investors, who have been the biggest buyers of our debt, are losing trust in the integrity of our fiscal policy. They see the U.S. budget process as virtually out of control. They see us running the largest current account deficit of all time. In response, they have begun selling the dollar and shifting their money elsewhere, with potentially devastating effects for American investors.

To head off a crisis and restore trust in America’s finances, a first step is return to a complete “pay as you go” budget process which will keep the budget hole from getting any deeper. This would reassure foreign and domestic investors and help prevent further damage.

Under our current system, Congress can spend all it wants with no immediate consequences. Only last month, Congress passed a $388 billion appropriations bill and increased the debt limit by $800 billion, meaning the federal government can now borrow up to $8.2 trillion with no plan for repaying it. It seems clear the federal budget process is largely broken, but Congress continues record spending on the cuff.

In contrast, with honest pay-as-you-go accounting in the budget process, also known as “pay-go,” every time the government proposes spending more money or cutting more income, it would have to find equivalent savings or revenues in the budget to finance the proposals.

This is both fair and non-partisan. Reasonable, responsible members on both sides of the aisle understand honest budgeting is good for America, no matter who is in charge. It was originally instituted in 1990 under George H.W. Bush and helped achieve the fiscal responsibility and budget surpluses under both Republican and Democratic administrations. It worked then. It can work again.

But time is short. The dollar has already fallen to a 4 1/2-year low against the Japanese yen, an 8-year low against a basket of currencies and an all-time low against the euro. Foreign investors have already reduced sharply their purchases of U.S. government securities and are now net sellers of U.S. stocks. Next, U.S. investors, seeking to avoid losses, may do the same.

To stabilize the dollar for the long term and protect our country’s financial future, Congress and the administration must move swiftly to prevent further deficit deterioration. They must account for all their spending, whether on tax cuts, more programs or expanded entitlements.

The dollar’s decline is not some distant crisis on the far horizon. It is here and now. Indeed, investors don’t have to wait until the next election to protest the federal government’s runaway deficit spending policies that are endangering their investments. Nor need they go to Washington and pound on decision-makers’ desks. They only have to pick up the phone or click on a mouse and issue one four-letter command: “Sell.”

That single act can send a very strong message to the White House and Congress: “Unless you change your ways, we won’t buy your dollars, and we won’t buy your bonds. We may even turn net sellers.”

Let’s hope the government gets its house in order with no massive financial crisis. But without swift and responsible leadership from Congress and the president, it soon may be too late to prevent the most dangerous decline in decades.

Martin D. Weiss is chairman of the Sound Dollar Committee, a grass-roots investor advocacy group.

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