The debate is raging in Washington about the looming debt limit witching hour, and the arguments are multifaceted. Almost everyone agrees that, if the federal government defaults on any payments to its debt holders, the economic consequences would be immense. But that is where the consensus appears to evaporate.
Our federal debt is now hitting the $14.3 trillion limit. The Obama administration is proposing an increase in that limit in excess of another $2 trillion. When President Obama took office, the national debt was $10.5 trillion—an amount that was already setting off alarm bells. By the end of his first term, the total is expected to rise to $17 trillion and is projected to jump to $24 trillion at the end of his potential second term.
Lining up to combat this crisis are a president who has no fiscal plan (but a lot of criticism of Congress) and a Congress that hasn’t even sent a budget to the president’s desk in the last two years. The budget that the Republican-controlled House enacted earlier this year (that was dead on arrival in the Democrat-controlled Senate) was timid at best in addressing the problem. Congressman Paul Ryan’s budget proposal would have only reduced the federal debt down to approximately $20 trillion from $24 trillion at the end of 10 years, and its rather anemic budget reductions were back-end loaded. Excuse me for being pessimistic, but viewing this array of “deficit warriors” is like watching old World War II scenes of the Polish horse cavalry charging Nazi tanks—with the difference being that at least the Poles had courage.
The frantic buzz in media and political circles in Washington and on Wall Street is that a debt default is unthinkable. That is true. But a $20 trillion-plus national debt is unthinkable also. If current spending trends continue in anything remotely close to the present path, the outcome will be equally calamitous as a default. It will open the door for runaway inflation, the loss of the dollar’s status as the world’s reserve currency, the inability of our nation to defend our citizens from enemies foreign and domestic, and the end of the social “safety net.”
If Paul Ryan’s timid attempt to address the worst internal threat our nation has faced since the beginning of the Republic is a non-starter in the political discussion, I have little hope for our fiscal future. It appears that the most likely scenario for reducing the unsustainable deficits going forward is for the federal government to inflate the currency to such a degree that huge increases in revenue will enter the federal coffers. Unfortunately, without a repeal of the automatic cost of living adjustments for government benefits and a cap on payments to Medicare and Medicaid providers—two very unpalatable options—even hyper-inflation can’t solve the problem. It would only add to the crisis.
While everyone in Washington whispers—or shouts—about the “D” word, there is another form of default that our “leaders” should keep in mind. Debt and runaway federal spending are risking a default of the standard of living and fiscal future of our grandchildren. How will they pay the debt we are running up? The income and payroll taxes that would be necessary just to maintain entitlements would be confiscatory for them. It is fiscal folly for the U.S. Treasury not to meet debt payments in a timely fashion. It is moral depravity for the federal government to increase spending and pay for it by diminishing the lives of kids currently in diapers.
It is time for some pampered egos to find some guts.