Centennial Review, October 2012 ▪ 2
Ignoring the problemamounts to betrayal.
Carmen Reinhart and Kenneth Rogoff call “nancial
repression.” Financial repression happens when, to solvea debt crisis, the government uses tools that rob working
families. One of the time-honored tools of nancialrepression is the debasement of currency by ination.Ination will make government debt seem smaller by
shrinking the value of the dollar. Yet for individual
Americans, ination will be an insidious hidden tax increase
that will make everything you buy more expensive andeverything you own worth less. If our government tries to
inate its way out of a debt crisis, much
of your life savings will be wiped out.Meanwhile, other nations will see this astheir chance to make what could be adecisive move against the dollar, and the value of the dollar would fall even further.Finally, the bottom would fall out of the middle class.Unemployment would soar while the cost of living wouldincrease. Real wage growth has been stagnant for years. It will be the middle class and lower-income families that pay the price for Washington’s refusal to act.
If Admiral Mullen is correct that our debt is our greatestnational security threat, doing nothing is a recipe formutually assured destruction. The reality is that doing nothing to solve the problem equates to both a tax increase
and a benet cut for seniors and the poor.
Doing nothing violates the core principles of both parties, while solving the problem is consistent with those values.Doing nothing is the real betrayal and the heresy. The big question facing America now, and in the foreseeablefuture, is not who is going to win the next election but whether we are going to defuse a debt bomb that has putour very survival at risk.From my vantage point, having spent hundreds of hours with people who have a sacred responsibility to solve thisproblem—from the president to congressional leaders—Ibelieve a consensus for a solution already exists in thecountry and in Washington.
But a real solution will never t into an election-year
strategy. In Washington, the moment to do what is right is
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might call it “Red Ink Rising.” In a very real sense, thethreat from borrowing from countries like China is greaterthan the threat of war with China. Sooner rather than later,a major fund or government will just decide one day thatbuying U.S. debt is a bad bet. And with one gust of wind,the house of cards will come crashing down. We need to face the facts. America is already bankrupt. We may not believe it or feel it yet. But we are effectively bankrupt. Our debt now exceeds the size of our entireeconomy. Our payments on our obligations—ourunfunded liabilities—exceed our incomeas far as the eye can see. No amount of obtainable growth or tax revenue will beenough.
Reimagine What Government Can Do
There simply is no possible way we can nance our
long-term liabilities without fundamentally reimagining what government can do in the 21st century. If currentpatterns hold, we’ll hear increasingly dire warnings andmore earnest promises to do something, but no one willact decisively until we experience more economic pain. Adebt crisis would likely move through four stages.
Stage 1: Congress tries to maintain the statusquo on spending and entitlements.
Stage 2: The United States faces additional creditdowngrades.
Stage 3: Interest rates markedly increase, harming consumers and sending interest paymentson the national debt soaring.
Stage 4: Ination soars, and the value of the
In this nal stage, borrowing enough money to fund our
military and other programs will become much moreexpensive. Because we will be spending more on interestpayments, it will be virtually impossible to balance ourbudget with spending cuts and revenue increases. The hole will be too deep and the sides too steep to climb out.
Working Families, Watch Out
Meanwhile, the so-called solutions that government wouldturn to at this point would make the problem much worse.Politicians would essentially try to save themselves by destroying the middle class with a tactic leading economists
Senator Tom Coburn
Our Ticking Debt Bomb