As we witness the latest riots and violence triggered by Greece’s desperate austerity measures, it’s easy to hype fears of our rudderless spending and debt mess by claiming that we could end up like Greece. Sure, Greece is drowning in debt and on the brink of default, but it’s a far cry from what we will face when our moment of truth arrives.
The amount that our federal government now spends every 30 days exceeds Greece’s entire annual gross domestic product. Every four months we rack up more additional federal debt than the entire debt that has brought Greece to its knees. Our federal debt is now more than 32 times that of Greece and, under current policies, is projected to escalate every 12 months at a pace that will exceed 200 percent of Greece’s total debt. We, plain and simple, are in a different league. When our debt crisis arrives and takes center stage, we won’t have any neighbors big enough to lend a helping hand or soften the blow. It will bring a whole new meaning to the old adage “the bigger you are, the harder you fall.”
Obama’s National Commission on Fiscal Responsibility and Reform, in its long-awaited December 2010 report entitled “The Moment of Truth,” summed up its findings by stating, “If the U.S. does not put its house in order, the reckoning will be sure and the devastation severe.” This commission was dead right, even though Obama chucked the report the instant it was issued.
We know what the “reckoning” will look like – what many call the inevitable “debt crisis.” Our burgeoning debt will force an escalation of the low interest rates that now make everything possible. Ever-escalating interest costs will trigger demands for more debt that will just keep pushing rates higher. This hopelessly destructive cycle will feed on itself. It will force the printing of more and more dollars and draconian spending cuts. The dollar’s value will plummet, along will real income levels, consumer demand across the board, government freebies, and the standard of living of everyone who isn’t rich. Social Security and Medicare benefits will be slashed to the bone. Unemployment will skyrocket, as will the tax rates on those who have jobs as the government forever scrambles to rake in dollars from progressively fewer taxpayers to fund an ever-exploding interest burden. Those who have capital will add to the misery by moving their money out of the country to safer ground, just like the Greeks have now flooded Switzerland with their savings. We will quickly slide into a deep, protracted recession that could hit depression levels as our private sector shrinks and fumbles miserably in its attempts to compete with the government’s insatiable demand for cash. We will end up a second-rate economic power, and our fall will badly hurt other economies. But many countries will scramble to ultimately emerge as the permanent beneficiaries of our misfortunes. We will enter a dark economic period that will outlive our kids.
Two discouraging events this week stoked my fears about the prospects of this sad reckoning. The first is the deal that has been made to resolve the payroll tax holiday extension standoff. Once again, basic fiscal responsibility has been completely tossed out the window to continue a crazy, costly government freebie that never made any sense. It’s just another confirmation that our political process makes it impossible for anyone to compete with Santa Claus or, in Obama’s own words, to become a “Grinch.” Each side must forever offer promises that match or beat the Santa Claus mindset of the other side in order to pander to the ignorant, short-sighted greed of American voters. And if all the Santa Claus promises can only be funded with more debts that rob our future, so be it.
The second discouraging event was the release of Obama’s new budget a few days ago. Of course, nobody, not even Obama, ever expected this monstrosity to go anywhere. His budget last year was rejected by everyone in the Senate, even all his buddies. This year the Senate isn’t even going to take up his proposals. So we know for a certainty that our government will continue without a budget, as it has now done for over 1,000 days.
But it’s not the guaranteed rejection of Obama’s budget document that’s the most troubling news. It’s the bottom line message of the massive document. A budget reflects in graphic terms and numbers the priorities and non-priorities of its maker. In this sense, this document reflects what one would expect regarding Obama’s priorities – huge entitlements, big infrastructure and pet project spending, no senior entitlement reforms, gigantic cuts in defense spending, permanent tax increases on families with incomes over $250,000, and big tax hikes on business owners and investors. The projections are wrapped in fantasyland assumptions and misrepresentations designed to create political sound bites and to ignore the factors that lead to the first-time-ever, humiliating rating downgrade of U.S. obligations just six months ago. But none of this comes as a surprise, given what we’ve seen in the past.
What’s most discouraging and revealing about this document is that, even with all the crap assumptions, our federal debt is projected to balloon an additional $11.2 trillion by 2022, we will perpetually borrow more as we continue ad infinitum at horrible spending and deficit levels, and we will end up with a rapidly accelerating annual interest tab in the unimaginable trillion dollar range. And when the crap is stripped away and replaced with something that reflects economic reality, the numbers just get much uglier much faster. The bottom line regarding priorities is that this document leaves absolutely no doubt that the person who now occupies the White House and will likely continue to do so for the next four years has no interest in responsibly meeting his Commission’s charge “to put our house in order” or even providing a plausible survival scenario that makes sense.
And that leads to a tough question: Can we really expect anything much better from those who now seek Obama’s job? As always, they jetted throughout the country this week with their slick slogans, finger pointing and mudslinging contests. Will their pat promises of tax cuts, killing Obamacare, and less regulation do the job? I wish that one of them would really provide some straight talk about the scope and reality of our debt situation that connects some dots, shows some numbers, focuses on realistic expectations, and evidences a genuine willingness to seriously buck the Santa Claus mindset. To pull that off and stay alive politically, that person would have to be a gifted leader with tremendous presence, true passion, a powerful ability to inspire with the truth, and a capacity to push people (and perhaps Congressional chambers) to a higher level. I’m just not seeing it in the current slate.
So, like many, I worry that we could end up with a White House newcomer who instantly targets his reelection challenges and ducks the hard realities for fear that we Americans couldn’t stomach the ugly facts or the uglier medicine. Remember that, after all the campaign promises, George W. Bush rejected the advice of his top advisors and wimped out during his first term on the best opportunity we’ve ever had to really reform Social Security because he feared the reelection wrath of uninformed Americans. Young Americans will forever pay for that costly mistake.
It’s undeniable that a serious debt crisis is in our future if we stay on course. All those in the media and elsewhere who shrug off our situation by referencing prior bad times dangerously underestimate the unprecedented nature of what we face in these totally unique times. The huge obstacle to any meaningful reversal in course is the short-sighted Santa Claus mindset that many Americans embrace with a passion and demand of their leaders. It may prove to be insurmountable.
February 27, 2012