We are borrowing more than $5 billion per day. That’s $35 billion per week to run our government, totaling more than $1.5 trillion in borrowed money just to run it this year.
Harvard’s great economic historian, Niall Ferguson, noted that the decline of a country can be marked when it pays its moneylenders more than its army. His classic case comes from the French monarchy of the 1780s that failed to make interest payments on their debt, causing the financial collapse that triggered the revolution. Recently, Carmen Reinhard and Kenneth Rogoff wrote a brilliant book titled “This Time is Different, Eight Centuries of Financial Folly.” Their vast study revealed that most government officials always believe they are unique and different, causing them to make the same mistakes that crippled past nations and empires.
Using Mr. Ferguson’s tipping point, where are we today?
This year, the total cost of maintaining our Army will equal $137 billion. This same year, we will pay $225 billion in interest to our moneylenders for the use of $14 trillion borrowed from China, Japan and elsewhere. The startling conclusion is that we already have passed Mr. Ferguson’s tipping point by paying America’s money lenders more than our own Army.
It gets worse.
In just six years, the administration says that we will have to pay more than $661 billion to our moneylenders for interest on our rapidly expanding debt. With the expected cost of our Army at $195 billion, our Air Force at $201 billion and our Navy/Marines at $217 billion, the total cost of $613 billion to provide for our common defense will be smaller than the $661 billion due to the moneylenders. In simple economic terms, we will be forced to pay our lenders their interest money first, before caring for our own safety - or risk seeing the value of the dollars in our own wallets disappear.
And these numbers are optimistic - they assume no severe spike in interest costs and no other war.
Recently, the Senate agonized over a short-term, two-week spending bill that made a $4 billion cut to spending. We should see that bill’s cuts as modest, knowing that we already pay $616 million daily in interest and more than $4 billion per week. In sum, the cuts of the two-week bill saved just one week of interest payments.
As dire as this situation is, there is a bright side. Our country has seen this movie before. Presidents George Washington, Abraham Lincoln and Franklin D. Roosevelt all accumulated economy-crushing debt as the fate of the United States hung in the balance. Our best example of what to do next comes from our own grandparents, rightly called the “Greatest Generation.”
Tom Brokaw coined the title for Americans of the 1930s and 1940s who defeated the Depression, Japan and Nazi Germany simultaneously. I would add a fourth, largely unnoticed victory that Mr. Brokaw missed. After three great victories for freedom, our grandparents spent the next 20 years paying the debt incurred to win the contests of the Depression, Pacific and Europe. Their accumulated debt of 1946 totaled more than 120 percent of our national income. Economists report that between economic growth and some inflation, the Greatest Generation reduced the crippling World War II debt that secured our victory during the late-1940s and 1950s. The return to more fiscally responsible government sparked an economic boom that built the superpower called the United States of America.
The lesson of history is clear. Each generation of Americans faces conflict, war and debt. Each generation is tested. The looming debt crisis facing this government is our generation’s test. While some government officials and bankers may still counsel ineffective action, saying “we owe this money to ourselves” or “because the dollar is the reserve currency, we can owe this amount,” we know that the crisis we face is not that different from the ones that crippled other nations. With spending cuts and discipline, we can master this danger as our grandparents did. The need to do the hard things - such as entitlement reform - is similar to the dramatic moves our grandparents made to secure our future.
But there is one difference between us and other nations: From the dawn of our revolution, the United States became the greatest force for human liberty and individual dignity ever known. The U.S. ended slavery, gave women the right to vote and spread freedom across Europe, Latin America and Asia. We are now challenged by 21st century world views in the Middle East and China that do not hold the Western value of the individual as high as we do. It is therefore doubly important to do the work needed to reduce spending and balance the books so that we restore the vitality of a free people and their cause of expanding liberty and individual dignity.
Next time you talk to a member of the Greatest Generation, don’t just say thank you. Ask them for advice on how to trim budgets and restore growth in the face of extraordinary debts - just as they did.
Sen. Mark Kirk, a Republican, represents Illinois.