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.
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.
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.
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.