With a budget deadline looming, politicians in Washington are flirting with a shutdown, not of the government but our economy. In the face of what Erskine Bowles, co-chair of the president’s own fiscal commission, frequently calls the most predictable crisis in our history, the alarm bells have not yet rung in Washington. In the nation’s capital, it’s only some hands on deck.
Here’s some perspective on this week’s debate: When our grotesquely obese government is borrowing $4.1 billion a day in order to function, the $29 billion gap between the House-passed continuing resolution and a possible compromise is enough to fund the government for seven days. Seven days.
What’s extreme in this debate is not our cuts but our complacency.
It’s time for politicians to tell the truth and talk in trillions, not billions. The $14.2 trillion question before us is whether discussion of our debt crisis is hyperbole and fear-mongering, or whether our debt truly is the “greatest national security threat facing our nation,” to quote Adm. Mike Mullen, chairman of the Joint Chiefs of Staff.
This question is critical because until there is a consensus in the country we will never have a consensus in Washington. There is no question that the American people are deeply concerned about spending and deficits. I’m concerned their representatives do not understand how close we are to a crisis. I’ve found great fault with my friend President Obama because this national conversation should be led from a presidential podium, not by political odd couples in the Senate. But in the absence of leadership from others in Congress or the administration, I will continue to work with any colleague from either side of the aisle who is honest about this country’s fiscal peril.
Congress and the White House are ignoring many blatant warning signs.
Just last month Pimco, the world’s largest bond mutual fund, sold all its holdings of U.S. Treasury bills, the financial tools that allow us to pay Social Security benefits and fund our military. Bill Gross, who runs Pimco, sent a clear signal to investors that he expects rates on our Treasury bills to go up and prices to go down.
Gross also expressed concern that the Federal Reserve, as part of its money-printing program, had bought 70 percent of all Treasury bills. When the government becomes the best customer of its own debt, that’s called a Ponzi scheme, and it is only a matter of time before interest rates skyrocket.
Any increase in interest rates when we are running massive deficits puts us in a deeper hole. In 2011, interest payments to service our debt are expected to reach $225 billion. If interest rates return to their historic average of 6 percent, interest payments will more than double, if not triple.
Even if rates stay reasonably low, the interest-payment trap is dreadful. By 2022, tax revenue will cover only the cost of Medicare, Social Security and interest payments on the national debt. Everything else, including our defense budget, will be paid for with borrowed money, including money borrowed from potential adversaries.
Economists Carmen Reinhart and Ken Rogoff estimate that when an advanced economy such as ours reaches a debt-to-GDP ratio of 90 percent, we chop one percentage point of gross domestic product off our economy. That translates into about a million jobs not created. When you count the money we’ve raided from Social Security and Medicare, we’ve already reached that tipping point.
There are signs the inflation beast is beginning to awaken. Bill Simon, the head of U.S. operations for Wal-Mart, said last week that he sees “serious” inflation ahead. Inflation is an insidious indirect tax increase that can wipe away wealth and savings with little warning.
The latest jobs report brought good news, but this could be an ascent before a stall and downward spiral. The engines of recovery will not function for long in the realm of stratospheric debt.
The best catalyst for forcing Congress to tackle our debt crisis will be the upcoming vote to raise the debt limit. We can either appease like Chamberlain or prepare like Churchill. Appeasement means avoiding the real issue and pandering to the debt-dodgers and dogmatists in both parties who define purity not on the basis of principle but partisanship and power.
I’ve confronted the phony purists on my side and need partners on the left to confront the same on theirs. We will never address these challenges without putting everything on the table and making choices that may end careers. Of my Republican friends I would ask: What good is a Republican Party without a republic? And of my Democratic friends: What good is your commitment to the poor without an economy to sustain your commitments?
House Budget Committee Chairman Paul Ryan, who unveils his budget this week, deserves credit for pushing the debate toward our $14.2 trillion question. His critics who fail to offer plans of their own have little credibility.
Congress can choose a path of prosperity over austerity but only if we act quickly. History, and future generations, will not be kind to those who sleep.
The writer is a Republican senator from Oklahoma.