By GOV. TIM PAWLENTY | 2/1/10 via POLITICO

The U.S. attorney general recently announced that the Justice Department is beefing up its efforts to fight financial fraud such as Ponzi schemes. Good. The agency should start by reviewing the spending habits of the federal government, which is running the largest Ponzi scheme our country has ever seen.

In a Ponzi scheme, organizers create the illusion of profit for early investors by siphoning money from later participants. It works until there is not enough income to pay the promised dividends, exposing the fraud and leaving everyone broke. That is essentially what the federal government is doing, as it continues to spend and promise far more than can ever be paid for by current and future revenues.

Last week, the U.S. Senate increased the nation’s debt ceiling by an additional $1.9 trillion. That vote was necessary to further the Ponzi scheme. It should serve as a wake-up call that this level of spending is unsustainable.

The debate is no longer between competing political philosophies — it is a matter of basic mathematics. Here is a sampling of the facts:

• Federal government spending has grown nearly seven times faster than median income since 1970, according to the U.S. Census Bureau and Office of Management and Budget.

• At more than $12 trillion, the federal debt is already more than 80 percent of the nation’s gross domestic product and growing fast.

• The federal government’s total debt, including unfunded liabilities, means about $600,000 of debt for every U.S. household.

Sooner or later, the federal government’s scheme will come crashing down, and the loss will be mammoth.

But it doesn’t have to end that way. If our country takes bold and decisive action soon, the worst effects can still be avoided.

We should start with the obvious. When the bathtub is overflowing, a wise first response is to turn off the faucet. The federal government’s spending-increase spigot needs to be shut off.

This will require a national understanding and acceptance of the problem: We need to admit our addiction to the illusion of government “free stuff” and demand that spending be cut in almost all areas.

This will not be easy. In recent decades, the national debt has grown regardless of which party is in power because too many politicians seek support by spending more, even though a sound economic future demands they spend less.

That’s why we need an amendment to the U.S. Constitution to require a balanced budget with limited exceptions for war, natural disasters and other emergencies. Every state but one has a balanced budget requirement, and while such requirements make for difficult decisions, they work.

The president also should be given line-item veto authority power as a budget enforcement tool. The experience of the states shows that this is an effective way of preventing excessive spending.

Spending reduction tools alone will not meet this challenge. We must also grow the economy. To that end, Congress should reject federal legislation that places additional burdens on growth, such as the proposed health care overhaul, cap-and-trade bill, labor union card check and tax increases.

Instead, lawmakers should support policies that promote economic growth. For example, the Bush tax cuts should be made permanent and tax burdens on individuals and businesses should be further reduced. To better compete overseas, Congress should finally pass the pending free-trade agreements with South Korea and Colombia, and re-enact trade promotion authority. And we should pass health care reforms that would empower consumers to make smarter medical choices and lead to more competition and lower costs.

Like most other states, Minnesota still faces its share of economic challenges. However, during my two terms as governor, we have dramatically slowed the growth of state government spending and moved the state out of the Top 10 in tax burden. In the current budget biennium, we actually reduced overall spending for the first time in the state’s 150-year history. It has not been easy in a liberal state such as Minnesota, especially during challenging economic times. But it’s possible with a balanced budget requirement, line-item veto authority, pro-growth policies and a lot of hard work and determination.

Ponzi schemes succeed because people want to believe in a free lunch as long as the easy money is rolling in. But a day of reckoning always arrives, and ours is right around the corner. The sooner we open our eyes, the sooner we can clean up this mess.

Tim Pawlenty is Republican governor of Minnesota
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