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America's Debt Wish

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Late on the evening of March 16th, the Senate passed a record $2.8 trillion budget and increased our national debt limit to a tad below $9 trillion. You may ask what difference it makes that our national debt is trillions of dollars and each citizen’s share is $27,981?

It makes a lot of difference in terms of the operation of the US government. More importantly, it says a lot about the American psyche.

We have an $8.363 trillion debt because the Bush Administration spends money as if there’ll be no tomorrow. And they have a rather cavalier attitude about all their expenses; they don’t want to pay for them. Their constant refrain is, “put it on my tab.” When the tab comes due, there’s not enough money in the US treasury to pay for it—remember those tax cuts that Republicans are so fond of—and so the government has to borrow money.

You may ask why don’t we just refuse to pay? What if Congress refused to raise the debt limit? Wouldn’t that teach bad George a lesson? Perhaps, but it would also mean that the Feds couldn’t send checks to Social Security and Medicare recipients, not to mention victims of Hurricane Katrina. What’s worse is that it would send a signal to the world that the US is no longer a credit-worthy client. Interest rates would shoot up, costing the US government, and you and me, a lot more to borrow money.

There are two schools of thought about our debts: One, represented by certain economists, and that old swifty, VP Dick Cheney, argues that the national debt, and the Bush Administrations annual deficits, don’t really matter so long as they are a reasonable percentage of the gross national product. I won’t bore you with the technical details, other than to say they’re the sorts that economists love to ponder. This group says, in effect, don’t worry, be happy.

The other group, represented by people who have their wits about them, folks like Paul Krugman and Robert Reich, argues that a day of reckoning is just around the corner. This has two faces: one actuarial and the other political.

I’ll be brief about the actuarial problem. There are these folks called “baby boomers” who are about to retire. When they do, they will expect services such as Social Security and Medicare; services that already cost us more than $1 trillion each year. The additional service recipients will dramatically increase annual Social Security and Medicare costs and probably our national debt.

So what? Why don’t we just keep borrowing? It’s worked for the Bush Administration, why won’t work it work indefinitely?

It might work indefinitely if we were borrowing from a politically neutral source, like The Bank of Heaven, but we aren’t. Sixty percent of the debt is privately held; countries like China, Saudi Arabia, and Japan hold one third. There is an increasing danger that our debt holders will wake up one day and declare, “You Americans are on a non-stop spending spree. We’re not going to pay for it any more.”

Of course, they wouldn’t cut us off completely. They’d be like our parents, they’d continue to loan us money, but with stringent conditions attached; like no going out after dark, and much higher interest rates. The problem is that these conditions would affect everything in our economy. They’d result in a drastic reduction in public services such as education and health care.

The other obvious problem is that we have dicey relationships with some of our creditors, like China and Saudi Arabia. So, if we threatened them militarily—I know that’s hard to imagine, but bear with me—they might respond by refusing to buy more of our bonds and selling those they have on the open market. This would immediately raise interest rates and, some say, cause runaway inflation. DNC chair Howard Dean recently characterized this problem as “a national security failure” of the Bush Administration.

The larger problem is that it’s not just the Bush Administration that likes to party as if there is no tomorrow, it’s the American people. As a group we spend more than we earn. Americans have a negative personal savings rate; we cover our tabs by taking out home equity loans. This propensity to borrow shows up everywhere in our economy. Last year our imports were 57 percent more than our exports.

So it’s not just the Bush Administration. Here’s the ugly truth: those party animals in the White House are reflective of a national psyche that spends as if there is no day of reckoning. If you’re one of those apocalyptic Christians who believe that the rapture is going to occur momentarily, then this may make sense. But, for the rest of us, it’s a problem.

When the day of reckoning comes then, at the least, we’re going to have to pay more for everything because all interest rates will jump up. Meanwhile, government services will be dramatically reduced. We’ll experience America’s morning after that will go on for a painfully long time.

In the meantime, America has to compete with other countries like India and China, and the European Community who have national mottos somewhat different from “Let’s party” and “Let’s kick some butt with our military.” These countries have mottos like “Let’s have the most advanced manufacturing capability in the world,” “Let’s become the world leader in telecommunications,” and “Lets have the most skilled work force.”

Remember, they can see us on TV. They’re all watching. Marveling at our collective debt wish. Party on, you crazy gringos.
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Bob Burnett is a Berkeley writer. In a previous life he was one of the executive founders of Cisco Systems.
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