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Drowning in debt: Obama's spending and borrowing leaves U.S. gasping for air
Sunday, August 9th 2009, 4:00 AM
James
Meehan
The unprecedented, improbable and indeed almost unimaginable global
financial crisis has virtually put an
end to the comfortable notion
that American and Western capitalism would dominate the world economy.
In turn, the financial
meltdown threatening another Great Depression
has been the rationale for a phenomenal expansion of government
spending
to prop up demand and fend off economic disaster.
As a result, the deficit quadrupled from $459 billion in 2008 to
$1.85
trillion this year. It has gone from 3.2% of gross domestic product to
13.1%, twice the post-World War II record
of 6% in 1983 under
President Reagan. What's more, the debt surge is unlike the one that
accompanied WWII in that it
will not be temporary.
The nonpartisan Congressional Budget Office reckons that the deficit
will run for a decade
and will still exceed $1.2 trillion in 2019. By
that time, the United States will have virtually doubled its national
debt,
to over $17 trillion. Then, after 2019, we get another turn of
the screw as the peak waves of baby boomers move into their
retirement
years and costs soar for the major entitlements, Social Security and
Medicare.
At 41% of GDP in 2008,
the accumulated federal debt will rise to 82%
by 2019. One out of every six dollars spent then by the feds will go
to
interest, compared with 1 in 12 dollars last year. These out-year
budgets will require an increase in everyone's income
taxes, raising
federal income taxes an average of $11,000 for families, a hike of 55%
per household - a political impossibility.
The
Government Accountability Office estimates that by 2040, interest
payments will absorb 30% of all revenues and entitlements
will consume
the rest, leaving nothing for defense, education or veterans'
pensions.
If the economy would grow
quickly, we might hope to pay down this
debt. No such luck. The GDP trajectory is gloomy, and on top of that,
the demands
of special interest groups threaten to reduce growth even
more. Just look at the medical world, which pushes expensive
treatments
at government expense for its benefit.
American attitudes and behavior have undergone a substantial change.
We are
saving more and paying down debt. We are transforming our
society from a consumer culture to a culture of thrift. In a
recent
Wall Street Journal/NBC News Poll, Americans were asked which economic
issue facing the country concerns them
the most. Deficit reduction
ruled over health care. Half were prepared to defer spending or to
spend less, even if it
meant extending the recession.
The feeling has grown that the Obama administration is taking on too
much, that the
President is trying to "boil the ocean." Obama's budget
is packed with a wish list of extensive new programs, especially
a
giant health care reform plan whose financing is thinly based. Rather
than talking - optimistically! - about a deficit-neutral
outcome, the
President should be proposing a program that reduces the cost of the
most expensive health care in the
world.
The public still likes Obama and recognizes his talent, but when it
comes to deficit financing of programs,
we have a country of
"born-again budget hawks" who will rise up if taxes are boosted to pay
for it all.
Main
Street feels it will recover only when American finances are on a
sounder footing. It believes that it will never recover
if huge new
national programs are allowed to create a monstrous structural deficit
that will keep building the debt
burdens far into the future to
unsustainable - perhaps ruinous - heights, while a weak recovery means
lower federal
revenues, the piling on of more interest obligations,
and thus even higher deficits.
Ruinous tax increases are inevitable
if spending cuts remain outside
the President's agenda.
Everybody is dazed and confused by all this talk of additional
indebtedness
in the trillions of dollars. Our soaring national debt
will require cataclysmic adjustments to accomplish the restoration
of
a balance in our fiscal position.
Otherwise, we face a dramatic erosion of U.S. economic and financial
standing,
raising the risk of skyrocketing interest rates and a crash
in the value of the dollar. Americans can no longer rely on
their
stocks and the soaring value of their homes to put their kids through
college and support early retirement. For
the first time since the
Depression, U.S. companies are not only cutting jobs; they are cutting
wages. We are undersaved
and underpensioned, and we will have to
adjust to a more frugal life.
With too much mortgage debt on their homes,
too much credit card debt
on their personal income, and too much overall debt, Americans have
learned that they cannot
continue to be borrowers.
Shakespeare had it at least half right when he said, "Neither a
borrower nor a lender
be." President Obama should heed Polonius.
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