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Communicating the Debt Disaster By: Vasko Kohlmayer
FrontPageMagazine.com | Friday, May 22, 2009


The party in power that engages in obvious excesses usually reaps consequences in opinion polls and at the ballot box. Under normal circumstances, then, the unprecedented Obama spending binge would have set the stage for a hard electoral backlash. 

But a strange complaint is being heard from the Republicans who say that the astronomical figures make it difficult to communicate the scope of the government’s fiscal license. “How do you translate the numbers into something that people can grasp to represent the broader problem?” a Republican pollster has been recently reported as asking. 

The complaint is not entirely unjustified. A recent survey found that only 21 percent of Americans could correctly quantify one trillion (a million million). The fact that many people do not know the difference between “federal deficit” and “national debt” makes talking about the problem more difficult still. 

As professional communicators, however, republican strategists should be able to find a way to warn the public about the unconscionable fiscal abandon that is being practiced in Washington, D.C.  The task is not as difficult or complicated as some would make it. Simplicity and straightforwardness make for the best approach. 

This year our federal government will post a deficit of $1.85 trillion. Deficit in any given year is the difference between what the government spends and what it takes in from taxes and other revenue sources. Accordingly, this year’s figure reflects the fact that our government’s outlays will exceed receipts by nearly two trillion dollars. 

To give a sense of perspective, America’s budget shortfall will be larger than the economic output of countries such as Canada ($1.5 trillion) or Spain ($1.6 trillion). 

This year’s deficit will be by far the largest in American history. The previous record was set in 2008 during the Bush presidency when it climbed to $454 billion. Obama’s deficit will thus soar four times higher than the old record. 

This year’s deficit will be approximately 13 percent of the U.S. economy whose overall value (GDP) is projected to be just above $14 trillion. Most economists warn against deficits exceeding three percent of GDP. Deficits above five percent of GDP are deemed to be economically unhealthy. Deficits above ten percent are considered outright reckless. 

Warning in March about the dangers of high deficits, Peter Orszag, the White House Budget director, said, “Deficits in the, let’s say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable.” Startlingly enough, Obama pushed through a budget whose deficit level exceeded that which Orszag warned against by almost a factor of three.  

Orzsag’s view is echoed by Mark Zandi, chief economist at Moody’s Economy.com: “I think deficits of 5 percent (of GDP) are unsupportable. It will lead to higher interest rates to the point where it will force policymakers to make changes.” 

When Obama’s budget blueprint first arrived in Congress, Judd Gregg, a ranking member of the Senate Budget Committee and the president’s original pick for commerce secretary, said, “The practical implications of this is bankruptcy for the United States.” 

Last week President Obama himself warned against the dangers inherent in very the fiscal and budgetary policy he has pursued so far. At a town hall meeting in Rio Rancho, New Mexico, the president described his current deficit spending as “unsustainable” and warned that it will eventually result in skyrocketing interest rates. 

The federal government covers the gap between its outlays and receipts by borrowing. This it does primarily by issuing financial instruments commonly referred as treasuries. The amount of money the federal government owes to holders of these debt instruments plus the amount that it has borrowed from other government entities – the Social Security trust fund, for example – constitute the federal debt. The debt currently runs at more than $11 trillion, which means that each individual citizen’s share exceeds $36,000. Since the second half of 2007, the national debt has been growing by nearly four billion dollars per day. Needless to say, America’s debt burden is the largest in the world. So large it is, in fact, that its dollar value exceeds the combined economic output of Japan and China. 

The Congressional Budget Office recently estimated that President Obama’s spending will add another $9.3 trillion to our national debt over the next decade. As a point of comparison, during his eight years in office George Bush’s deficits added “only” $2.4 trillion. 

The federal government does not only owe the nominal value of outstanding treasuries, but it also has to pay interest on it. Last year the United States spent eight percent of its budget ($412 billion) in interest expenses. This was far more than what was spent on the Department of Education ($61 billion) or NASA ($15 billion).  

Large as the “official” government debt is, it does not tell the full story of America’s indebtedness. The reason for this is that the current government accounting practices do not take into consideration entitlements such as Social Security and Medicaid. In light of present demographic trends, the government’s implicit promise to cover their costs translates into further 50 trillion in financial obligations. With these included America’s national debt exceeds the stratospheric sum of $60 trillion, which is about as much as the world’s combined GDP in 2008. 

Since our government officials do not want us to know the true degree of America’s indebtedness, they have figured out a way of taking entitlements off the federal balance sheet. This they did by arguing that entitlements are not genuine accounting liabilities, because they can be reduced at will by legislative measures. But everybody knows that it is almost impossible to cut entitlement benefits. Long considered the third rail of American politics, entitlement reform is something politicians of both parties are reluctant to touch. The last one to get burned was George W. Bush who after his 2004 re-election tried to use his “political capital” to address the spiraling cost of Social Security.  In the absence of political will to tackle the problem, entitlements continue their unchecked growth, eating up ever-larger portions of the federal budget. In 1962 entitlements consumed about a quarter of the federal budget; last year they comprised 54 percent. The share will increase further as baby boomers retire in droves. 

Given our current levels of indebtedness and the fact that we keep adding new debt at a record pace, experts are beginning to increasingly warn that America may not be able to dig itself out of its fiscal hole. Investment guru Mark Faber articulated the thoughts and fears of many when he said last Friday on CNBC, “The U.S. government for sure will go bust. That I guarantee you. Not tomorrow, but it will go bust." 

There is evidence that foreign governments are becoming increasingly cognizant of this possibility. In recent months China has been putting more and more of its cash into commodities instead of U.S. treasuries. At the same time, China and Brazil and Argentina have been working toward denominating some their trade transactions in their own currencies rather than in dollars. These are ominous clouds on our fiscal horizon and more are sure to follow as our spending continues unabated. 

It is by now painfully obvious that further increasing our national debt will only drive us closer to the edge of the fiscal abyss. Even though some may have difficulty grasping the size of the figures involved, most of us intuitively understand the first principle of fiscal governance: Eloquent rhetoric notwithstanding, it is impossible to borrow one’s way out of debt.


Born and raised in former communist Czechoslovakia. the author is a naturalized American citizen. He is a regular columnist for Frontpagemag.com and his work has also appeared in The Baltimore Sun, The Washington Times, The American Thinker, The Jewish Press, RealClearPolitics, and other publications.


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