The endless months of spinning and rhetoric are finally over. No more appealing to your fears about how your finances and prospects will suffer if the other guy's elected. No more tortured "explanations" about why stocks or bonds went up or down on any given day because Sen. John F. Kerry or President Bush came out ahead or behind in some poll.
Now that we'll no longer be looking at everything through the prism of presidential politics, let me share a secret with you. Financial markets don't know from blue and red; they know only from green. As in the color of money. Markets don't care who's president. What they do care about, ultimately, is how we handle or don't handle serious long-term problems that we've been pushing into the future for so many years that they're becoming short-term problems. We're not talking about starting to save to send your newborn to college, folks. The kid's already in high school.
The winner will have to confront the government's addiction to borrowed money. Even as the baby boomers' retirement draws perilously near, our interest payments are mounting, restricting our freedom of action. We've gotten lucky because foreign investors and Social Security tax receipts have helped pay the bills. But we won't stay lucky forever.
What matters now is whether we own up to the problem right away, or whether we wait for some horrible shock -- such as foreigners' closing the lending spigot -- to make us act.
But wait a minute, you say. Aren't you being alarmist? Isn't our national debt money that we owe ourselves? Not anymore. Treasury statistics show that since Bush took office, foreigners have put up more than 90 percent of the cash it's taken to keep Uncle Sam's checks from bouncing. From January 2001 through this past August, the amount of "privately held" Treasury securities (as opposed to those held by federal trust funds) rose by $910 billion. During this period, foreigners' privately held Treasury securities rose by $830 billion -- 91 percent of the increase. Foreigners now own 43 percent of our privately held national debt, up from 30 percent in 2001.
Now, I'm not a xenophobe. Foreigners have done us a huge favor by keeping Uncle Sam's interest costs down. But someday, for reasons of their own, the foreign central banks that are major purchasers of Treasury debt may cut way back or stop entirely -- for strategic, not malicious, reasons. They might want to protect their own currencies, for instance, or diversify into euros. We'll be vulnerable as long as we need so much foreign money so badly.
Social Security has been one of the few budget bright spots because we haven't cut Social Security taxes. Social Security took in $65 billion more cash than it spent in fiscal 2004. The Treasury gave Social Security its I.O.U. and took the cash, which reduced our need to borrow. Social Security projects that its cash surplus will peak at about $107 billion in 2008, then start falling. So by the time our new president leaves office, Social Security's cash cushion to the rest of the budget will be deflating.
During their campaigns, Kerry and Bush both talked about cutting the federal deficit in half by the end of their terms. But even if that's enough, which I doubt, their budget numbers never added up -- especially Bush's. Bush proposed to fix Social Security through the magic of private accounts -- but provided no details. Anyway, given the stock market's past four years and dim prospects, private accounts don't look too magical. Kerry said he wouldn't cut benefits -- but raised the prospect of a commission someday. Maybe it would summon the courage to cut future benefits and raise taxes to bring the system into balance.
Uncle Sam's interest tab is rising: $160 billion in fiscal 2004, according to the Congressional Budget Office; $178 billion this year; $255 billion in fiscal 2007. These added interest costs are money that won't be available for social programs -- or, if you're inclined that way, for tax cuts.
Interest rates and federal fiscal responsibility are linked. Interest rates, in turn, help drive the economy and the stock market. Unless you expect the rest of the world to lend us cheap money forever, which I don't, we'd better clamp down on our borrowing addiction. Social Security's problems draw ever closer, Medicare's a horror I don't even want to think about. Let's hope our new president deals with finance, not fantasy. If not, it's going to be an awfully long and painful next four years.
Sloan is Newsweek's Wall Street editor. His e-mail address is firstname.lastname@example.org.