Congress has been on a pretty stunning spending spree recently – even by Washington, DC standards. Earlier this year Uncle Sam sent out billions of dollars worth of economic stimulus checks, this week they transferred $8 billion to prop up the highway trust fund (HTF) , and over the weekend they guaranteed as much as $200 billion taking over mortgage giants Fannie Mae and Freddie Mac.

And it’s all on the nation’s credit card.

The Congressional Budget Office (CBO) just predicted that this year’s federal budget deficit will be nearly $407 billion. That’s all going on the nation’s credit card. Not quite a record in dollar terms – that was 2004 at $413 billion – but it is likely we will break it. The CBO estimate includes a caveat—they didn’t try and predict the impact of the Fannie/Freddie bailout. Plus, we’re expecting another $50 to $100 billion more may soon be ponied up for another round of economic “stimulus.”   

But here’s the catch: the economy, and especially the housing market, is on the rocks right now. And the highway trust fund is running on empty, which is bad because it is meant to maintain our bridges and roads. So Congress is in a bit of a pickle. How do they get things going again, keep more bridges from falling down, prevent a housing-market-based financial meltdown, and avoid leaving our children and grandchildren with an empty piggy bank? (Actually, the piggy bank will likely hold an enormous I.O.U to China that the kids get to repay.) 

While the economic impact of this spring’s stimulus checks has been dubious at best, it was pretty certain that allowing Fannie and Freddie to fail would have set off financial tremors across the world, not just here at home. But as we wrote back in July when the initial actions to backstop the two organizations were being discussed, Congress had a long track record of turning a blind eye while Fannie and Freddie stiff-armed attempts by regulators and the public to demand more transparency and oversight of their operations. Operating largely under the radar for years, they both grew to such a size that it was impossible to believe the government would not step in if they showed signs of failure.

The mortgage market, nearly half of which is tied up in Fannie’s and Freddie’s $5 trillion portfolio, will continue to have a huge impact on the economy. Markets need freedom and flexibility to work in people’s best interests, but Fannie’s and Freddie’s troubles were foreseeable and even preventable. Congress did not heed earlier warning signs, making the takeover almost inevitable. The housing market is too important to our economy and people’s lives to allow the high price of freewheeling shenanigans of a few to bankrupt the rest of us.

We must do better going forward. So why, at the same time we are heading toward record deficits, is Congress talking about adding more to the nation’s tab? Enormous budget deficits adding to a nearly $10 trillion debt aren’t good for the economy either. So, a twofer may be actually paying for any economic stimulus by cutting spending or finding more revenue. That will serve to hold down the cost and demonstrate to the world that the U.S. is finally getting serious about the nation’s budget.

A lack of foresight and oversight has gotten us into a financial mess that looks to be with us for a while. Nothing has occurred in this economy that Congress and the Administration didn’t know was possible, even likely. If we are to work out of our budgetary quagmire, Congress and the next President need to remove the blinders, roll up their sleeves, and face our fiscal challenges head-on.