In August of this year, Admiral Michael Mullen, chairman
of the Joint Chiefs of Staff, advised Congress that “The National
debt is the biggest threat to our national security.” In
November, voter sentiment against the debt and deficit led to an
historic rebuke of Congressional incumbents. In December, the
President’s Debt Commission laid out in stark terms
the imminent economic impact of continued deficit spending.
Apparently rejecting these clarion calls, the President and
Congress acted in the lame-duck session to cut not
one dime of federal spending, while increasing
the national debt by nearly $1 trillion. They are ignoring a
glaring problem that, if not addressed soon, will cause a panoply
of other problems.
Some insist that the problem with increasing the debt by
nearly $1 trillion is that the borrowed money will be
loaned to us by China. Concerning as it is that we have become the
world’s largest debtor to a foreign sovereign whose interests are
(to put it mildly) not always in harmony with our own, that’s not
the biggest problem. What ought to be of even greater, more
immediate concern is the fact that China will refuse to loan us
the money.
From October 2009 to October 2010, we financed $734
billion of our $1.690 trillion deficit through loans
from foreign entities. And while China remains our
largest creditor, China actually reduced the amount of
U.S. debt it holds by $32 billion over the last year — from
$938 billion to $906 billion. Through its actions,
China has indicated that it will no longer fund the
U.S. government’s practice of perpetual deficit
spending.
So if not China, then who? That’s the
problem.
The largest increase in U.S. debt holdings over the past
year was a near five-fold increase by the UK — from
$108 billion to $477 billion — and a near three-fold increase by
Canada — from $44 billion to $125 billion.
The reality is that the UK and Canada do not have another
half-trillion dollars to loan the U.S. in 2011.
According to the World Bank, the entire economic
output of the UK and Canada combined is only about
$3.5 trillion annually.
So if China won’t and the UK and Canada can’t, who is
going to loan us a trillion dollars in the next 12
months? Nobody knows.
The economic threat from China and other foreign countries
loaning us trillions of dollars is like falling off the Empire
State Building. It isn’t the fall itself that kills
you… it’s the sudden stop.
Commonwealth investors increased their U.S. holdings last
year as they fled debt holdings in the Eurozone,
nearly collapsing several EU government-bond markets
derisively referred to as the PIIGS — Portugal, Italy, Ireland,
Greece and Spain.
It is instructive to look to Europe to forecast what could
happen to the U.S. Having been forced to find
religion, every EU country is now embracing austerity.
Our circumstances will soon convert us to the cause of fiscal
fundamentalism as well.
One option would be to continue borrowing wildly, like the
PIIGS, until the bond markets simply proclaim, “No
more!” The ensuing lack of confidence hit the PIIGS economy,
causing unemployment rates in those countries to double over the
last three years to an average of 13.3%. (Spain’s unemployment is
now over 20%).
The other option necessarily involves forcing Congress to
live within its means by adopting a balanced budget amendment.
Germany has benefitted substantially from taking a similar step two
years ago. With a constitutional mandate to balance its budget by
2016, Germany now has an unemployment rate of 6.7% — its lowest in
18 years. Switzerland has long had a balanced budget requirement
and currently enjoys a 4.4% unemployment rate, the lowest in
Europe.
The need has never been greater for the U.S. to balance
its budget by cutting spending. But as the President and Congress
have once again shown, it simply will not take that difficult step
unless it is forced to do so. For that reason, we need a balanced
budget amendment — ideally one patterned after the amendment
proposed by Pass the BBA (of
which I am national chairman). It is calling on
Congress to vote on the BBA on October 1, 2011 — the first day of
the next fiscal year. We should all pray that it will not be too
late.
Set aside for a moment the threat of the U.S. debt
crippling our children decades from now or our grandchildren a
generation from now. With China unwilling to loan the U.S.
additional money, and the rest of the world likely unable to loan
us enough money, the debt threatens to cripple our economy
now.
We can either act to pass a balanced budget amendment this
year — the only way to ensure Congress will act — or China and
others will force upon us a more abrupt and painful balanced
budget. The choice is ours… but not for long.
