David Sterman

Imagine a train speeding down a track, just a few miles away from a wall that it will crash into. You can't see the wall yet, but you're told it's there anyway. As the train chugs down the track, the wall gets closer until it comes into view. Before long, that wall appears bigger and bigger until it is right in front of the train. By that time, there's no way to stop the train in time and you can only hope that the damage isn't catastrophic.

That's the game Washington is playing with our economy.

Policy makers have frittered away ample opportunities to address our nation's soaring budget deficit, failing to agree on a package of spending cuts and tax hikes that will close the gap and avert a crisis. Now, as we head into the summer, the budget deficit remains quite large, and the train is on auto-pilot. By the end of this year, a range of automatic spending cuts will kick in and a series of tax breaks will expire, leading to the newly-popular phrase "fiscal cliff."

Should you be concerned? If you have a stake in the U.S. economy or have funds in the stock market, then yes, you should be very concerned.

A huge brake on the economy
Believe it or not, the stunning run of budget deficits during the past decade has actually been good for the economy. It's simple math. The government has pumped more money into the economy than it has extracted, which has supported all kinds of sectors from defense to healthcare to technology to education.

We can all agree that it's wise to eliminate our budget deficits so we don't leave an even bigger mess to the next generation, but it's crucial to understand that reversing our nation's massive debt load, which now exceeds $15 trillion, means that the government not only needs to cut spending in line with tax revenues but actually to a level below that to start paying down the debt. It's as if the government will put its foot on the economy's brakes for a long time to come.

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com

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