Because of the simple fact that the Founding Fathers never envisioned a government this big (not to be taken as positive or negative in nature, by the way) the Constitution was not created with the concept of massive loans or balanced budgets in mind. In those days, the concept of paying off any debt was a matter of fact proposition. Bankruptcy today is an annoying thing to go through for anybody or any thing. 250 years ago, it was ruinous. You would be black marked and never loaned or credited a pot to pee in if you defaulted on debt.
As a result, there is no problem, at least a directly notable one, to paying off bonds by issuing more bonds. Realize, at about 2.5% these days, the US Government has access to some of the cheapest loans around. Now, that doesn't mean doing so is eternally perpetuating. But the fact of the matter is, this country, regardless of what you might think, is about 500 miles up **** creek in a leaky raft with neither pail nor paddle.
To be very fair, and I am not a big Bush fan (Actually, I personally hate the man, but thats not relevant.), most of the problems we are having are not really his fault, nor are they particularly connected to the war. In some respects, without the war, we'd be even deeper into the creek. Most of the problems we are having are connected to four things.
First of all, economies expand and contract their rate of growth. We were, and would be, in a naturally contraction at around this time if it wasn't for the other two things. Nobody is responsible for this part, its just the natural cycle.
Second, oil is reducing in supply (you may not actually believe this, but with Russia and Saudi Arabia both trying to produce oil as fast as they can, their output is going down!) at the same time that several large countries are industrializing and mobilizing, so the price of oil has sky-rocketed, taking most other commodities with it. Metals were recently at record highs. Bush is not responsible for this, nor is the war.
Third, Americans made a huge mistake and started loaning money based on sub-prime mortgages. They loaned money with tight constraints for things that added little value, they pushed up housing prices unnaturally, they cashed out home equity like a bank, and generally started living more and more on a credit economy. The natural contraction was enough to tighten the belts just enough to go past the constraints, and it has turned into a cascading systems failure. Major financial institutions (Bear-Stearns, for instance) started to crush under the weight of all of this. This means the whole market is crushed, bruised, and scared to loan money- just at a time when every body REALLY needs it. Bush is not responsible for this, even if you think they turned a blind eye to too much of it. In good times, everybody does that.
Fourth, and this part is partially Bush's fault, is the herculean idiocy that is the concept of corn Ethanol in fuel. Whomever thought up this has so little knowledge of economics we should execute them for thinking of it, execute the person who listened to them for being criminally dumb enough to listen to this, and severely beat anybody who tried to promote it as a good idea! Here's the concept. Corn is a commodity, like many others, that is geared to produce on average something approaching the exact amount needed, and fallow fields are fallow to protect the earth from over farming- a necessity. A fluctuation in demand of 5% can bring it from record lows to record highs.
People decided we had a lot more capacity than needed, a fallacy. So we decided to use this capacity and help our poor farmers by creating a new market for corn. YAY! But wait... you've now increased demand for this a good 30-40%! Fallow fields are no longer fallow, depleting nutrients! Not only that, but the price that can be charged for it has skyrocketed! Well jeeze, this causes people to use other grains- raising their prices, too. So the price of all grains have gone up heavily, dramatically increasing the cost of producing a wide variety of staple food items.
So here is where we are. First of all, our economy is naturally contracting, second, energy costs for producing or transporting anything is going up, third, money is hard to come by, and fourth, food has gone up in price. This is increasing the price of anything, forcing consumers to sacrifice any optional purchase in the name of required purchases. So the economy is seeing much less sales of luxury items, which in turn reduces profits, puts people out of work, makes people poorer, and they buy even less luxury items, and spiral.
The only way to recover from this is to pour huge amounts of money into the economy. There is no point where this particular spiral can reach equilibrium, unfortunately, without external intervention.
