Posted on 06/30/2008 6:06:46 AM PDT by Diana in Wisconsin
Tax rates could double. Spending on education, research, health and even Social Security could be squeezed tighter than ever. And foreign governments could use powerful financial leverage, rather than military force, to impose their economic and political agendas on the United States.
All because the U.S. national debt - which is being financed on a daily basis by the governments of China and a host of oil-exporting states, among others - has made this country far more vulnerable than its elected leaders let on, says David Walker, who recently finished a 10-year stint as U.S. comptroller general and head of the Government Accountability Office.
The nation's former auditor-in-chief will outline this crisis scenario today in Milwaukee, when he and an entourage of like-minded Washington policy analysts make their latest stop on Walker's Fiscal Wake-Up Tour.
Foreign governments and investors now hold fully half of the United States' total outstanding debt, making Washington susceptible to a new form of geopolitical conflict that Walker calls "financial warfare."
"I'm sure that people during the Roman Empire never thought that that Rome would fall," Walker said in an interview last week.
The tour began over two years ago and has visited 40 cities so far. The idea is to stoke change at the grass-roots level because, Walker said, elected leaders have been unwilling to address America's impulse to live beyond its means. Tour participants say they are acting in the spirit of Paul Revere.
"I believe we will wake up and make tough choices," Walker said. "The question is when. Will it be before, or after, a crisis?"
Walker and his group span a wide ideological spectrum. Appearing with him in Milwaukee are:
• Stuart Butler, vice president of the conservative Heritage Foundation, which has close ties to the Bush Administration.
• Alice Rivlin, former director of the Office of Management and Budget under President Clinton and now with the center-left Brookings Institution.
• Robert Bixby, director of the centrist Concord Coalition, which focuses solely on national budget policy. Its board includes former Federal Reserve chairman Paul Volcker, former Clinton Treasury Secretary Robert Rubin, and former senators Sam Nunn, a Democrat, and Warren Rudman, a Republican.
Since March, Walker has been working as founding president and chief executive of the Peter G. Peterson Foundation. Peterson, a billionaire co-founder of the Blackstone Group private equity firm and commerce secretary under Richard Nixon, launched the foundation to lead a fiscal reform movement.
In congressional testimony last week, Peterson called the nation's borrow-and-spend practices "undeniable, unsustainable and yet politically untouchable." He said if policies remain unchanged, federal commitments including debt service over the next 75 years will total $53 trillion - which comes to $175,000 for every man, woman and child in the U.S. today.
"A lot of politicians know we have this problem and don't do anything about it," Bixby said. "What gets us on the road is a shared concern that we're dumping a huge - and some argue an immoral - burden on future generations. The immoral part is that we know we're doing it and we don't care."
Shadowing candidates
As the 2008 presidential campaign began, Walker's tour began shadowing the primaries. Stops have included New Hampshire, Ohio, Michigan, Iowa and a February visit to Madison.
Bixby follows the spending and tax pledges of both party's candidates. Without quibbling about what he calls the questionable budget math of John McCain and Barack Obama, Bixby arrives at a different point: Even if either candidate is able to finance his campaign pledges in a budget-neutral way, the nation's fiscal imbalances will continue to worsen.
"We cannot afford the fiscal policy that we already have," Bixby said.
Even before the baby boomer generation has begun to retire, Social Security, Medicare and Medicaid constitute 42% of the federal budget, he said. In the next 30 years, the share of population that's older than 65 will hit 20%, from 13% currently, which commensurately inflates the cost of those programs. At the same time, inflation in health care costs far outstrips economic growth, meaning that Medicare and Medicaid in 40 years will be as big as the entire federal budget today.
In less than 20 years, those three programs, plus interest payments on America's debt, will consume all the tax revenue the nation can expect by then, Bixby said.
"You'd get a crisis long before this," Bixby said.
And then there's what Walker calls financial warfare. Japan and China are America's two biggest lenders. Great Britain is third, followed by a bloc of oil-producing states including Iran, Kuwait, Saudi Arabia and Libya.
So in trade and military disputes, China, as America's No. 2 lender, holds considerable influence.
Foreign lenders, Bixby notes, can demand conditions - or threaten to stop buying U.S. Treasury securities, or even dump their existing holdings outright. To lure other buyers of Washington's debt, U.S. interest rates would then have to rise sharply, throttling the nation's economy.
"It means foreigners have more leverage on us and we have less leverage on them," Walker said. "You have to pay attention to your bankers."
"I don't think we should assume that we are too big to fail," Bixby said.
Growth not enough
All on the tour agree it's a fantasy to argue that the U.S. can grow its way out of its debt, Bixby said. "The economy would have to grow at an implausible rate forever," Bixby said.
Walker and his entourage also concur that few politicians are prepared to deal with an issue that will require sacrifices and hard choices - telling Americans that they cannot borrow forever.
But the next president and Congress cannot duck the issue entirely. For instance, a large portion of President Bush's tax cuts are scheduled to expire in 2010, and many want to extend them.
Walker and the Peterson Foundation are pressing the issue in several other ways.
The foundation recently acquired distribution rights to a documentary film, "I.O.U.S.A.," to be released in 13 cities in August. Walker calls it an "economic 'Inconvenient Truth.' "
The foundation has published "A Citizen's Guide to the Financial Condition of the U.S. Government" on its Web site, www.pgpf.org.
As for the tour, Walker said the biggest audience response comes from the slide he reserves until the end - his three grandchildren.
"We are not only putting ourselves in debt and expecting our kids to pay for it," he said, "we're cutting back on investments in the future."
People also don’t look at the asset side of the U.S. ledger. The government (us) own 65% of the land in this country and all the mineral wealth, buildings, etc. on it. What is 800 billion barrels of oil shale worth? Several trillion dollars probably. Coal, brudges, highways, etc.
Obviously the answer is to reform entitlements but blaming politicans is a waste of time. The people in this country don’t want it to happen. It is clear to me the people lead and political leaders follow, or are voted for when they mirror the people’s mood.
In 1976 people were not ready for Reagan, not after just coming out of Vietnam. But they were ready after 4 years of Carter. In the 30s the Brits were not ready for Churchill as he warned them of the Nazi threat. But who did they turn to when war started. And five minutes after Germany surrendered they kicked their greatest leader to the curb because the people wanted to go in another direction.
Our leaders are for the most part a reflection of ourselves. Sad but true.
Bingo.
That's what everyone was crying about back then - the last time America was about to collapse.
I'm in complete agreement.
I don’t get it. If I have nothing in the bank, and buy that Foster’s on my credit card, the argument is that I should’ve bought Budweiser on my credit card instead.
Moreover, think about it intuitively: government borrowing in excess should reduce the value of the dollar, which would theoretically increase the attractiveness of US exports to foreigners and decrease the attractiveness of foreign imports to US consumers.
Reducing leverage by itself should increase a trade imbalance.
Not tooo surprised.
I have to do statistics by the manual.
Thanks.
I think the points are still worth pondering.
LOL
Thx.
Bail us out of what? The Japanese have had large trade surpluses for 20 years now yet their economy has been sucking wind for the past 18 years. How do you explain that away given they have a strong currency?
In 1989 they were eating shaved gold on their sushi and plotting to dominate the world's economy. Today they still can't get their economy going while 40 year old professionals have to live with their parents because they can't afford a home. Is that the kind of economy you think we should emulate?
What a GREAT POST! The above live, an aged and proper way to live in the last century, "below your means", is exactly how my parents raised their four children. Yes, I've spent too much on C.C.'s before, but I've been able to pay them off quickly too, and I am now more fiscally responsible than I have ever been in my life. I don't like the feeling of being in "Debt" to anyboby or any credit card company. My wife and have 2 cards between us and they get paid off at the end of every month now. We've raised a generation of people who must have what they want "Right Now" and it is to the detriment of this country, much less their emotional health. The question is, how are all the people who don't have the extra funds to cover their minimum monthly payments on their C.C.'s, going to LIVE when they can't afford to pay it or the cards off??? That is a cause of great wonderment for me. I know some people who have $10-15K on their cards and they're paying $335-390 Per Card every Month, and I don't know how they do it, it's a real waste of emotions to NOT live within your means, that's what I've found.
I meant “THE ABOVE LINE” (of Course!!!)
I had to post and run this morning; chasing the Almighty Dollar myself, LOL!
I agree with you. Just more gloom and doom. HOWEVER, it drives me absolutely BONKERS to have any personal debt of my own, so I try not to think about how in debt we are as a nation.
Things have to get much worse though, before the rest of the nation even notices. Even with $4/gallon gasoline, and all the whining that entails and the SLIGHT changes people are making in their budgets, nobody’s shoes are pinching enough for them to care, yet.
Not yet. The drain is steady and like the boiling frog. Eventually many may wake up one day to find their options are all closed.
“Eventually many may wake up one day to find their options are all closed.”
And that’s what I work against every single day. You gotta stay informed and try to stay one step ahead of them. :)
These people are phonies. How do they want to fix Medicare (the biggest problem)? Universal Healthcare: “On health care, the foundation sees universal coverage as the right long-term goal, but it plans to set priorities for controlling costs. “The worst thing in the world we can do right now is to try to bring 47 million more people into a system that is badly broken, unaffordable and unsustainable,” (David) Walker said.
http://www.pgpf.org/newsroom/newsclips/freelunchmentality/
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