If future historians look back on the ruins of the American economy after a U.S. bond crisis struck in the second decade of the 21st century, many causes will be noted. Obviously, it will be seen that for decades before the catastrophe, the United States was spending vastly more than it could afford on government health and retirement programs.
Just as after the Great Depression, Pearl Harbor and Sept. 11, 2011, blue-ribbon commissions will be incredulous that all the telltale signs of the coming disaster were in plain view yet were ignored.
But the central indictment for the catastrophe that ended American prosperity and world dominance will be justly laid at the feet of those Washington politicians who continued to play for short-term partisan advantage even as the economic earth was beginning to move under their feet.
Of course, it may be claimed in partial mitigation of their guilt that the politicians, like the witch in Goethe’s Faust, had become acclimated to the noxious brew: “Here I have a bottle, From which, at times, I wet my throttle; which now, not in the slightest, stinks.”
But the cup of Washington partisan politics is raising a higher and higher stink amongst the public. And if the crisis comes while some Washington politicians continue to get drunk on their business-as-usual brew, the public is likely to choke on the defense of “governing while drunk on partisanship.”
Former Clinton Secretary of the TreasuryRobert Rubin warned in January that, most dangerously, there is a risk of disruption to our bond and currency markets as a result of much higher interest rates caused by fiscal imbalances, fear of inflation and efforts to monetize our debt (print money). Significant deficit premiums on bond-market interest rates would follow on and seriously impede private investment and growth, causing an economic crisis. To look more deeply just at the impending interest burden on the federal budget, consider the assessment of economic analyst Craig Steiner last week:
“The problem is that the United States, with a $14 trillion national debt, cannot afford to pay a higher rate of interest. President Obama’s budget proposal outlines interest rates of 3.2 percent this year going up to 5.3 percent in 2021, and that produces interest payments of $205 billion this year to $928 billion in 2021. The projected annual deficit is going from $841 billion in 2015 to $1,116 billion in 2021. That means in 2021, 83 percent of the money we borrow will be to pay interest on money we’ve already borrowed.
“If instead of 5.3 percent interest in 2021 we’re paying 15.8 percent [as we did right after President Carter], our interest will be $2.7 trillion per year, and our annual deficit will be almost $3 trillion … almost all on interest. Using President Obama’s own estimates, the [gross domestic product] in 2021 will be $24 trillion per year. So we’d be paying 11 [percent] of our GDP on interest.”
It is in the face of the inevitability of the current path leading to eventual crisis and the distinct possibility of the crisis hitting at any time - as Mr. Rubin, former Fed Chairman Alan Greenspan and many other distinguished analysts have warned publicly - that President Obama’s terribly ill-advised speech last week may well be judged harshly by history.
Putting aside for the moment that the central policy the president prescribed for dealing with the deficit was trillions of new tax dollars to be raised, the speech may be judged a historic tragedy because: 1) Even if it passed and worked as planned, a reduction in predicted cumulative deficits of just $4 trillion over 12 years is grossly insufficient to deal with the magnitude of the deficit and debt, and 2) the openly partisan tone - his characterization of GOP Budget Committee Chairman Paul Ryan’s policies as un-American while Mr. Ryan sat right in front of him as a presidential guest at the speech - has dangerously raised the level of political bile just at the moment when we desperately needed to lower it.
Even if there is only a one-in-three or a one-in-six chance of the bond crisis hitting before 2013, the downside risk of such a calamity is so immense that no responsible Washington political leader would take it. It is like playing Russian roulette with our future. Would any reasonable person put a six-shooter with even one bullet in the chamber to his head? Of course not. Yet that is what, so far, the Democratic Party leadership - and some elements of the GOP Senate - have done.
Even the Ryan plan, solid as it is, probably will be judged as not containing enough deficit reduction soon enough. The only proposal put forward so far that clearly deals with the danger is that of the Republican Study Committee, led by Rep. Jim Jordan of Ohio. Where Mr. Obama would reduce the deficit by $4 trillion - and never achieve balance - and Mr. Ryan would reduce it by about $6 trillion - and get to balance in the late 2030s - the Jordan plan would reduce it by $9.1 trillion and reach balance by 2020.
If the Jordan plan or something like it is not enacted into law in the next year and a half and the crisis hits, its non-passage may become one of the great, tragic “what-ifs” of history.
As this column was going to print, Standard & Poor’s announced it was downgrading the outlook for U.S. Treasury bonds to negative, saying it thinks there’s a risk U.S. policymakers may not reach agreement on how to address the country’s long-term fiscal pressures.
Tony Blankley is the author of “American Grit: What It Will Take to Survive and Win in the 21st Century” (Regnery, 2009) and vice president of the Edelman public relations firm in Washington.
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