A TALE OF CREDITORS AND DRUNKEN SAILORS
MARCH 25, 2005
AN EDITORIAL BY JIM COOPER
It's official: by the last year of the Bush administration our federal government will be spending more money on interest payments to wealthy bankers than to our own citizens in the form of highways, parks, schools, research, welfare, law enforcement, etc. For the first time since World War II, our creditors will be getting more of our tax dollars than our own citizens. For the first time since the American Revolution, most of those new creditors are foreign.
As the United States continues to run the largest budget deficits in our history - $412 billion of red ink in 2004 - Congress is spending more and more money just to service the $7.75 trillion debt. The first trillion dollars of that debt was accumulated over 204 years; now we are adding a trillion every two or three years.
The interest owed on such huge sums is paid to anyone who has purchased U.S. Treasury bills, notes, or bonds. These are some of our nation's most solemn obligations because America has never defaulted on its debt. We must never default if we are to remain a superpower. But that doesn't mean that we must borrow money like drunken sailors.
Increasingly, purchasers of these bonds - i.e. lenders to America - are foreign nations. Already Japan holds $712 billion of our debt and China has rapidly increased its holdings to $194 billion. If they ever decide to stop lending us a billion dollars a day, the cost of home mortgages and bank loans in America could rise sharply, possibly setting off a panic in this country.
Of course, some purchasers of Treasury bonds are U.S. citizens, banks, or mutual funds that are owned by Americans. But when the U.S. personal savings rate is at the lowest point since the Depression, we are now unwilling or unable to loan ourselves the money we require to run our own government. We are the richest nation in the world, but we are begging poorer nations so that we can maintain our lifestyle.
According to the House Republicans' own budget, by 2009 on-budget interest payments of $426 billion will be larger than the $410 billion that will be spent on all domestic, non-defense, discretionary programs of federal government. This $410 billion is what most Americans think of as government: interstate highways, student loans, national parks, the FBI, federal judges, agriculture, etc. It does not include the programs like Social Security or Medicare that are partly paid for by American payroll taxes.
How did our citizens start losing out to creditors in getting help from our own government? Once we borrow, we have to pay - the needs of our own citizens come second. You can't default to creditors; you can to citizens.
If current trends continue, the Government Accountability Office estimates that by the year 2040 our interest payments will be so high that it will take almost all of our tax dollars just to pay interest on our debts. There will be no money left over for national defense, Social Security, Medicare, or any other domestic spending. By 2040, creditors will be able to foreclose on America.
The best way out of our debt hole is to stop digging. Sadly, Congress is not only digging deeper every day but using a power shovel. One bill alone, the 2003 Medicare drug bill added $8.1 trillion to our nation's unfunded obligations, money that, if current trends continue, we will have to borrow from the Chinese. This one bill is twice as big a financial problem for our nation as all of Social Security. We need a drug benefit, but we also need to pay for it.
Congress needs to adopt a number of long-overdue changes such as those offered by the Blue Dog Coalition: for example, knowing what each law costs, recording votes on major expenditures, and banning new programs unless they are paid for. Working with the Republican Study Committee, the Blue Dogs have proposed a 12-step program to get America off of its borrowing binge, and back on the path of budget discipline.
If we don't start living within our means, we will not have the means to live. We will depend on the charity of our bondholders, not the strength of America's citizens.