There’s one issue that still has broad bipartisan support: At some point, Washington will have to rein in its budget deficits – hard – or the national debt will explode.
“It’s dangerous because the US debt will be so large the government may have trouble finding buyers for that debt,” says Brian Riedl, a budget expert at the Heritage Foundation, a conservative Washington think tank. The result would be far higher interest rates to attract whatever investment money can be located in the world.
“We are on the path to building up debts that are unsustainable,” says James Horney, an economist with the more liberal Center on Budget and Policy Priorities (CBPP). He worries that international lenders will get “spooked” – even in the short run – about the safety of US debt.
To dramatize the risks, another Washington think tank sent 17 men onto the capital’s streets wearing Uncle Sam suits to beg with handwritten cardboard signs pleading, “I want you to give me $12 trillion.” Federal debts currently stand at $11.9 trillion, a total that includes reserves of Social Security and Medicare trust funds as well as debt owned by the public in the US and abroad.
The Uncle Sams were part of a million-dollar-plus campaign by the Employment Policies Institute to raise awareness of the “frightening reality” of the swelling debt and the need to do something about it, explains Richard Berman, executive director of the EPI. The think tank will start advocating solutions, maybe in January, he adds. “A lot of people have their heads in the sand.”
Many analysts agree on the basic debt problem:
•Within a few weeks or months, the Obama administration will need to ask Congress to boost the $12.1 trillion debt ceiling. On a new website, the EPI has posted a debt clock with the lower numbers rising rapidly.
•Even at today’s low interest rates, servicing the debt is costly. The EPI says it costs almost $500 million a day, much of it going to foreign banks and governments.
•Budget deficits will total $9 trillion over the next decade, a White House budget review forecast in June. That number, Mr. Riedl holds, underestimates the deficit by nearly $4 trillion. The biggest problem isn’t the cost of the stimulus, it’s retiring baby boomers swelling the expenses of Medicare and other federal programs.
•Looking at debt held by the public (not debt owned by US government entities), Riedl projects the total will reach $20 trillion by 2019. That sum would match 100 percent of gross national product, the total output of goods and services. That projection is similar to the CBPP’s, which reckons US debt will reach 300 percent of GDP by 2050.
Today US federal debt is a bit above 40 percent of GDP. That compares favorably with those of some other nations as reckoned recently by the Organization for Economic Cooperation and Development in Paris: Japan’s is at 163 percent; Britain’s, 60.6 percent; Austria’s, 59.5 percent. But Germany’s debt is lower, 38.9, as is Canada’s, at 28.6 percent.
Britain’s government last month proposed selling $25 billion in assets, including part of the Channel Tunnel it owns, to pay off debt. What divides left and right on rising federal debt is what to do about it.
Mr. Horney doesn’t want to restrain stimulus spending “for the next few years” unless the economy bounces back rapidly. The right uses the debt as a weapon against any costs arising from healthcare reform or other extra spending.
In 2009, federal receipts declined 16.6 percent. To tackle the rising debt problem, taxpayers may face bigger tax bills in the future – or huge spending cuts.
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