David Walker was the U.S. Comptroller. He traveled the country on what he called his “Fiscal Reality” tour. He was trying to wake people up to the disaster that is real and looming in the distance, just out of sight. What is he so worried about you ask? The National Debt and our refusal to even discuss the issue are keeping him up at night. Half of all the taxes you pay go from your pocket to the pockets of both the Chinese and Japanese governments which buy most of our debt. You are basically paying taxes to China.
Bill Clinton was a lot of things: some good some bad. One good thing was that he was a Rhodes Scholar of Economics. He understood, like all economists, that every day we ignore this problem, the solutions become more and more painful. Bill had a 3 part plan to fix this mess but he only had time to accomplish 2 parts. The first was to balance the budget; the second to create larger revenues for the government to make a surplus. The third was to use the surplus to pay down the debt. Under Bush, about half of our budget is spent to pay interest on the debt, wasted money that could be used to cut taxes or to spend more on programs, depending on your preference.
I realize the debt isn’t a sexy topic but stay with me: the debt is a greater threat to us than Al Qaeda could ever be. You see, bonds are the government’s credit cards. When you buy one, you are loaning money to the government at a certain rate. If bonds are cheap, which means they will have a higher return on the investment, then investors put the money there because it is one of the safest investments you can make. The government guarantees the return. But, if there are not a lot of bonds out there, they rise in price and become less attractive than putting your money in stocks. If you balance the budget you don’t have to sell as many bonds so the supply goes down and the price goes up. It was no accident that the stock market took off when we had a balanced budget and a surplus, even though taxes were raised to balance the budget. Rich people were forced to put money in companies which created jobs and more revenue for the government.
If you have ever run up any credit card debt, you know that it is not the principal that gets you but the interest. Were you in control of your credit card company, you could pay the principal first and then there would be no interest compounding annually; but you aren’t and the credit card companies aren’t going to let you cheat them out of all that gravy! In our example, the government is its own credit card company. We can decide to pay ourselves back any time we have the cash, which is why it was such a tragic day when Bush gave back the surplus: not because I don’t need a tax break but because we should have been willing to give that tax break to our children. When they grow up and see what we have done, our children and their children will hate us for leaving them basically working to pay taxes. Every year, the amount of time you spend working just to pay your taxes gets a little longer. So please, next time some pollster calls or you are talking to a politician, please tell them that we can’t solve any issue facing this country like health care or education until we PAY DOWN THE DEBT and regain our fiscal sanity.