Friday’s unemployment figures of 7%, while perhaps slightly more cheerful than expected, still mean that roughly 11 million people are out of work and that the U.S. economic recovery remains stubbornly sluggish. That’s why it is truly the season to take the long-overdue step – remarkably a simple step, really — that would bring over $1.5 trillion in offshore corporate profits home. By removing the Scrooge-like obstacles embedded in the tax code, this exiled cash could be fueling our sputtering American economy instead of creating jobs and investments in China or Vietnam by American multinational corporations.
One looming issue that President Obama did not address in last week’s press conference about the latest technical and bureaucratic snafus with the Affordable Care Act has to do with the act’s heavy reliance on America’s younger generation. Without young, mostly healthy people pouring money into the new insurance pool, the Affordable Care Act would not be, well, affordable.
Our handling of the national debt is like a grand, inter-generational Ponzi scheme that’s destined to drown our children and grandchildren in red ink. Our leaders like to call their strategy borrowing, but it is really tantamount to stealing — from our children, worse yet. Why? Because we have no plans to pay the debt. None. We continue to borrow just to make interest payments that are estimated to be $5 trillion over the next decade while doing nothing to pay down a staggering debt of $17 trillion.
Equally alarming, perhaps even surreal, is that party leaders who can hardly agree on the color of the White House can be found nodding their approval at the fiscal fiction “that deficits don’t matter,” as then-Vice President Dick Cheney told a disbelieving Paul O’Neill, the treasury secretary at the time.
Fast forward a decade to President Obama, the anti-Cheney, who was telling George Stephanopoulos on ABC that “we don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s gonna be in a sustainable place.” House Speaker John Boehner, considering the President’s comments in a separate ABC interview, concurred that the crisis is not immediate. This pervasive Washington attitude is reflected in Office of Management and Budget’s 2014 projections that show the national debt haplessly climbing skyward through 2020 with no sign of coming down.
This state of affairs might qualify as a refreshing show of bipartisanship if it weren’t such a frightening denial of the most elementary budgeting principles. This chronic American deficit denial is not just a matter of money and economics. It’s a matter of national security, as Mike Mullen, the former chairman of the Joint Chiefs of Staff, has warned: “I’ve said many times that I believe the single, biggest threat to our national security is our debt.”
The reason for both the fiscal and security concerns is that the scenario we’ve created puts the nation at the mercy of its lenders, a list not so comfortingly topped by China, custodians of some $1.3 trillion in U.S. debt. Japan is a close second, followed by an odd conglomeration of creditors that includes oil-exporting countries and Russia, among others. If any of these nations want their money back, it’ll be like the sub-prime mortgage crisis of 2008, when people continued to borrow more without any plans or means to repay the loans. Now it’s our government that borrows more and more, with no plans to actually pay off its debts, more than $5 trillion of which is owed to China and other foreign countries.
The Federal Reserve is virtually printing money, although not technically, by virtue of financial engineering that essentially takes money out of one governmental pocket and puts it into another, creating the potential asset bubble. But as with the sub-prime mortgage crisis that bubble could pop at any time if lenders stop lending, much as the banks did during the sub-prime crisis. The city of Detroit’s bankruptcy filing should serve as a sobering reminder of what could very well lie ahead for the country as a whole.
But our leaders in Washington continue to engage in fiscal denial by downplaying the size and significance of the deficit: They talk about it as a percentage of GDP, the Gross Domestic Product, even though a dollar of debt is still a dollar that we owe to someone — in our case trillions of dollars, owed to creditors both foreign and domestic. The logic is that if the economy grows, then the growing debt, as a percentage of a larger GDP, will still be relatively small, or, as the president said, “sustainable.” So we can just borrow more. But that leaves a projected shortfall between federal income and spending that goes on in perpetuity — and that is not sustainable, as our children will be stuck with it.
This ill-conceived approach to spending and managing debt, born in the 1980s and rarely altered since, is astonishingly contrary to the simple budget lessons we teach our kids: Try to live within your means. When a typical family falls on hard economic times, the first thing it does is freeze or reduce its expenses. There is no reason that the government cannot do the same, and now is the time: According to OMB’s 2014 projections, the U.S. can balance its budget by 2017, without any spending cuts, by simply freezing spending at its current 2013 level, a projected $3.69 trillion. In 2017, the federal government will take in revenues of $3.76 trillion, creating a modest surplus.
Unfortunately, such simple arithmetic eludes both political parties, whose members seem to prefer denial to developing a plan that at least starts generating enough federal income so that the U.S. can make interest payments without borrowing. Until that happens, our leaders are really just stealing from our children, and we can all recognize that this is unconscionable.