Let’s Open Our Eyes

Patrick Henry, who most famously cried, “Give me Liberty or give me death!”, also said: “It is natural for man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts.”

Illusions are so comforting. As long as we can cling to them, we don’t have to face the unpleasant world—or ourselves. Have you, like me, ever told yourself that a snack is OK because you can cut back on calories later? For some reason, later never seems to arrive and the waist keeps getting bigger.

The more successful you have been, and the more power you have, the easier it is to fall into the trap of doing the easy thing now because you can always fix it in the future. The fly diving for the sweet nectar of the Venus Fly Trap hasn’t the slightest doubt that he will be able to fly away after the feast. Yet, the outcome is always the same.

Politicians are the Grand Masters of living a life of illusion. Regardless of political party, they are men and women who have devoted their lives to creating an illusion about themselves in order to win elections. And, since the payoff in politics is always short term, the most compelling thing for them to do is ignore the future. Grab the instant prize; someone else will fix it down the line.

For many decades, some of the most intelligent and articulate people in the country have promoted the concept that the government is a huge candy bowl. Washington is the source of never-ending free goodies that don’t have to be paid for. And, the country has bought into it.

There is only one problem with this. The United States is bankrupt. The government cannot afford to keep the promises it has made to the American people. This is beyond dispute among those who have taken a serious look at our country’s financial situation. Yet, our elected leaders continue to shut their eyes to this painful truth.

Before Libya pushed financial news off the front pages, much was being made about the dramatic showdowns between the Republicans and Democrats in Congress. The former wanted to cut $61 billion from this year’s budget. This amount represents 1.6% of the total spending projected for the year, and only 3.7% of the projected budget deficit. The median (half above and half below) household income in the U.S. is $46, 326. A spending cut of this magnitude would be about $740 for the year for a family. Most of us have done more than that, but the mere prospect makes swooning politicians reach for the smelling salts.

The Democrats are using every weapon in their formidable arsenal to resist those cuts by portraying them as extreme and irresponsible.

Neither side is serious. The debt is rising by about $5 billion a day, or about $3.5 million a minute. In that context, the $61 billion that the Republicans have set as a goal represents only about 12 days of borrowing. If the Republicans succeed, the national debt by the end of September will approach $16 trillion. If the Democrats succeed in avoiding any further cuts, the national debt by the end of September will approach $16 trillion. The difference in their positions, in relation to the total debt, is about 3/10,000,000.

Today, the U.S. has some $14.2 trillion in public debt. (This does not include the more than $100 trillion in future year financial obligations it has assumed.) President Obama’s proposed budget projected that the public debt will rise to some $19 trillion by 2021. Just a month after making that projection, the independent Government Accountability Office estimated that the debt would be $2.7 trillion greater than forecast by President Obama; or, almost $22 trillion. (Historically, every single five and ten year forecast of the growing debt has been low. The Congress always spends more money than expected. I believe that, if we continue on our current path, the debt will be much more than $22 trillion.)

But, let’s assume that the forecast is right this time and the debt will be only $22 trillion in ten years. The interest payment, at the current weighted average rate, would be about $420 billion in 2021. This would be only slightly less than the amount projected to be spent on all non-defense discretionary spending.

Rates are almost certain to rise from today’s historic lows. The average interest rate on public debt over the past 30 years has been almost four times greater than it is today. If rates rose to that 30 year average, we would pay almost $1.6 trillion just for interest on the debt in 2021. That is equal to the total amount projected to be spent on all discretionary spending in 2021, to include defense and security.

In short, over the next ten years, we could shut down every single cabinet agency (including defense), close every single government program except entitlements, fire more than 4 million civilian and military personnel, and still save only enough to pay interest on the debt.

But, interest rates are likely to be much higher than in the past. Inflation is beginning to come back. Oil and food prices are rising dramatically, and like Ole Man River, the Fed just keeps rolling (printing money) along. If inflation drives interest rates to the levels seen in the late 1970’s, then the amount needed to service the public debt will approach the total projected tax receipts.

Under this plausible scenario, we could eliminate all government activities across the board, including entitlements, and still collect only enough taxes to pay interest on the debt.

The answer isn’t to raise taxes. We can’t raise them enough without destroying the country. We can’t print more money without igniting hyperinflation. The only answer that works is to cut spending. We must stop increasing the debt. That means no more budget deficits. Starting now. Not sometime in the future.

I don’t know what the future will bring. But, I do know that our country cannot survive with the federal debt burden that we already have. Continuing to increase it merely drives more nails into the national coffin.

The Obama Administration ignores this and projects deficits and increasing debt as far as the eye can see. The Democrats cling to their illusions. The Republicans, on the other hand, talk about responsible change but, so far, have not done anything serious about it.

This is not unique to America. Throughout history, whenever a country has faced an overwhelming debt burden, the politicians have acted as if they are somehow exempt from the consequences of their actions. They continued to tax, borrow, and spend their way into a financial collapse of their country.

There is an old story about the sinking of the Titanic. When the ship hit the iceberg some chunks of ice fell onto the ship’s deck. Some of the wealthy party goers, confident that no harm could ever come to them, reportedly broke off bits of the ice and used it in their drinks. They partied while the ship sank. I don’t know if that is a true story. But, if it is, the tuxedoed gentlemen and their ladies must have been politicians.

It may be good political theater to appear to be fighting. And, the tinkle of a bit of iceberg in one’s whiskey might be charming, but the ship is sinking and those we elect to represent us don’t act as if it is a real problem.