This column on the growing U.S. debt situation originally appeared in late March 2009. Considering what's happened of late, it's an early warning, and one that didn't account for the 2010 elections and the emergence of the "no new taxes" Tea Party movement.
No matter what you hear about a near-term economic recovery, whether it be from assorted TV pundits, presidential advisors or even the President himself, don’t believe it. The idea that the U.S. economy is going to recover and start growing again by year’s end is pure fantasy. Perhaps it will recover by the end of 2010, or 2011 (or maybe not until 2012 and beyond), but it is not going roar back anytime soon. Even Suzie Orman, not one to advise doom and gloom, thinks we’ll be sorting through this mess until 2015.
As Kenneth Rogoff, the Harvard economist and former head of the International Monetary Fund is on record stating, the situation that’s happened to us, to the world’s economy, is a “once in a hundred years event.” The stimulus money may be flowing, the Dow may be up a bit, but the U.S. and the world economy remain in the grip of one of the worst economic downturns yet experienced, and precisely what is being used to finance our way out of the trouble we’re in – debt - is what is setting the stage for more trouble to follow.
Debt is the dirty four-letter word of the Obama era. We’re already swimming in it, and the spending has just begun. Between the Bush era deficits and the reckless spending of the past eight years (three major tax cuts, the Medicare Part D giveaway, two wars on borrowed money) and the recent financial rescue packages (TARP, the stimulus bill, the first Obama budget proposal, TARP II – the 2nd bank and financial services rescue), the billions are stretching fast into trillions. The federal deficit, already a major long-term problem before the financial collapse, is now projected to swell to many trillions – perhaps well over $10 trillion. I saw a mind-boggling graph the other day that charted the upward progression of the federal deficit from the end of the WWII. The deficit spiked during the Bush years; it jumps upward dramatically for 2009 and 2010, and over the next five years it takes off like a rocket, straight up.
The President’s projections about growth in the next few years to offset the deficit are unrealistic, as Republicans, some Democrats and the Congressional Budget Office (CBO) fear The only thing that will grow in that timeframe is more and more debt, and it clearly is unsustainable. It will wreck the dollar and the federal government, and we’ll all be in the poorhouse.
Already the Chinese, who hold most of our debt and are expected to purchase so much more of it, are letting it be known that they are growing nervous about the situation. If they pull back, even a little bit, from taking on skyrocketing U.S. debt our situation could become perilous almost overnight. A devaluation of the U.S. dollar at some point in the future would be devastating to everything and everyone in this country.
Making matters even worse will be the baby boomer retirement. This tsunami is just getting going but it is going to roar ashore during the next ten to fifteen years. Boomers have already been separated from some of their life savings, such as they were, in the financial collapse, and many will not have the time to recoup; they’ll retire poorer than their parents, although maybe not their children. Beyond the problems with Social Security, Medicare is taking on serious water and will not be able to meet its obligations to the boomers.
I am an optimist by heart but I cannot see the post-industrial U.S. economy growing its way out of such debt as we’re taking on. All this talk about bringing jobs back to our economy, while absolutely essential, is not going to be easy. Many of the jobs we have lost to date will never come back, as John McCain honestly if unwisely stated during the presidential campaign. We will never be able to compete for those jobs with lower wage countries around the world.
Staggering deficits will require higher taxes, and not just on the wealthy – on everyone. That will crimp consumption and growth. But trillion dollar deficits are far worse in their effects. That’s the dragon we’re feeding now out of necessity – but it’s the dragon we’ll have to eventually slay by hard work and shared sacrifice.