NATIONAL DEBT

Nation’s cash flow worse than advertised

By Mike Clark

American households understand debt. Too much of it can put you in the poorhouse.

On a national scale, however, debt is less easy to understand. Can’t the nation just print more money?

Even on a national scale, however, too much debt can hurt America.

Mortgaging the future: Like a homeowner using credit for groceries, debt ought to be used for big national projects with a multi-generational payoff like roads and bridges. Without those investments, quality slowly declines.

America is the greatest nation in modern history because the private market has been free to operate at superior levels.

If government stifles that private market, then the entire foundation of America is at risk.

Here are ways that debt hurts America:

Cuts in benefits: When debt is used as a substitute for a stagnant economy, something has to give, which means cuts in programs.

Higher interest rates: When the government borrows too much, it squeezes private equity markets. That pushes up interest rates for everyone.

Higher taxes: At current trends, by about 2040 all of the government’s tax revenues will be eaten up by entitlements and interest on the debt. This simply cannot happen.

The crisis factor: When the next major recession hits and the nation needs to increase government spending to stimulate the economy, that ability will be stifled. That means the economic crisis will be worse than it should be.

Though the nation’s annual budget deficit has declined in recent years – thanks to budget cuts forced by a sequester – the debt continues to rise.

The ratio of federal debt as a percentage of gross domestic product has climbed to levels not seen since World War II.

Liberals downplay the issue, referring to “debt scolds” and pointing out that some nations like Japan have been living with high levels of debt for years. But Japan also has been suffering with a stagnant economy.

Can’t we print money? Yes, Americans old enough to remember President Jimmy Carter recall “stagflation,” high inflation rates combined with a poor economy — the worst of both worlds.

Those in the financial world understand that the nation’s balance sheet is in crisis.

David Walker, former comptroller general of the United States, has been spreading the word about the debt crisis.

“Our nation’s financial condition is worse than advertised,” he said.

 

 
Walker is concerned about mounting liabilities and unfunded commitments. Politicians are great at making promises that future generations must keep.

Americans generally don’t save enough, the government overspends and debt is being used to cover it all.

But the worst deficit is one of leadership, Walker says.

“We need leaders who will face the facts, speak the truth, work together and make tough choices,” he said.

Walker says that Americans are hungry for truth and leadership.

That is where President Donald Trump comes in. He is bold, he isn’t worried about political correctness and he certainly isn’t playing the Washington spin game.

Mary Meeker, one of America’s most influential financial analysts, produced a book-length report on the state of the American economy titled ‘USA Inc.’

Her conclusion: There are huge warning signs.

• America’s cash flow is deeply in the red.

• Net worth is negative and deteriorating largely due to unfunded entitlements.

“In effect, USA Inc. is maxing out its credit card,” Meeker writes. “It has fallen into a pattern of spending more than it earns and is issuing debt at every turn.

The outlook is not all negative, however. Grover Norquist, in his book ‘End the IRS,’ writes about the anti-spending revolt of the tea party that followed the presidential election in 2008. After 30 years of fighting for limited government, he was both “surprised and delighted.”

Taxes or economic growth won’t work as solutions, Meeker writes. The only realistic solution is to cut spending on entitlements.

The responsible course is to announce a plan and phase in spending cuts so as not to shock the economy. Bipartisan plans to deal with the debt have been floated in recent years but there has been a deficit of leadership to enact them.

“Only God knows when we might have a debt crisis and God’s not telling us,” Walker said. “But what we do know is we’re not exempt from the laws of prudent finance. You can’t spend $1 trillion plus or more each year than you take in.”

To quote an editorial in the ‘Economist’, a British publication: “The country’s long-term fiscal problems are immense. It taxes like a small government country but it spends like a big government one. Eventually demography – and the huge tribe of retiring baby boomers who expect pensions and health care – will bankrupt the country.”

We know what needs to be done. Now we need leaders to take action.

 
Mike Clark is the editorial page editor of ‘The Florida Times-Union’ in Jacksonville.

$61,537

EACH AMERICAN’S PORTION OF THE NATIONAL DEBT AS OF JAN. 23, 2017
Source: U.S. Treasury, U.S. Census

CHALLENGES

Our out-of-control national debt risks ever-higher tax rates and interest rates, slows growth and cripples investment and innovation.
Our debt is an immoral surcharge on our children and grandchildren — a bill we are leaving them.
The national debt also endangers our ability to react to future economic crises. Washington is nearly out of tricks to cover over the dreadful financial picture.

OPPORTUNITIES

Cutting government spending, instituting pro-growth policies and balancing the budget are essential. Now.
House Speaker Paul Ryan, a deficit hawk, and businessman President Donald Trump should be able to come together to steer the nation toward a balanced budget.
Higher economic growth could help federal revenues — as it did in the 1980s, when pro-growth policies led to a doubling of revenues.

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