The $1 trillion wake-up call
Just a week ago, President Bush’s position was that the fundamentals of the U.S. economy were sound. This week the administration and Congress will be working on what will be the largest federal intrusion on the nation’s free economy since the Great Depression.
Sunday, the president’s emissaries, led by Treasury Secretary Henry Paulson were making the rounds of the morning news shows, spreading the message that speed is of the essence and Congress should pass a “clean” bill. We would agree that Congress shouldn’t drag its feet — and given that Congress is due to take is pre-election recess at the end of the week there is little reason to suspect that congressmen won’t act with alacrity. But, in a statement reminiscent of something we said last Wednesday, it depends on what the definition of clean is.
Neither Republican nor Democratic congressional leaders were eager Sunday to give the president a blank check. Basically, conservative Republicans are not yet convinced that it is wise to make a historic commitment of money the government doesn’t have to shore up the mortgage industry. Democrats, meanwhile, have taken the position that if the government is going to bailout bankers, there should be limits on how much of the money goes into the bankers’ pockets and there should be more done to protect individuals against loss of their homes.
At this point, the administration line is that a $700 billion bailout isn’t really a $700 billion bailout because eventually the government will recoup an unspecified percentage of its investment. Maybe, maybe not. But until those dollars start rolling back in, the federal debt is going to be carrying an additional $700 billion. And Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, said adding the cost earlier bailouts will bring the bill to $1 trillion — and that’s just for September.
There now stands a very real possibility that when President Bush leaves office, the national debt will stand at more than $11 trillion. He’s asking Congress to approve increasing the debt limit to $11.3 trillion. That’s nearly double the $5.7 trillion he inherited from President Clinton.
The national debt was about $900 billion when President Carter left office. It reached $1 trillion in the first year of the Reagan presidency, and more than doubled to $2.5 trillion by the time Reagan left office. It continued to grow to $4 trillion under four years of President George H.W. Bush and to $5.7 trillion under Clinton.
We have become a nation that borrows and spends, exporting our debt to Asia and the Middle East and saddling the next generation and the generation after that with the bill.
President Bush and Paulson are correct in saying that the fragile U.S. credit markets cannot be allowed to collapse. Almost certainly, a bailout that closely resembles what Paulson has presented will have to be passed.
A bit late
But it is unfortunate that the president did not recognize sooner that the borrow and spend policy that his administration was willing to pursue for eight years carried with it the inherent risk that when a fiscal emergency arose, the government would be ill equipped to handle it.
The national debt was relatively stable through the 1950s, rising by a few billion one year, falling by a few billion the next. Since 1960, the debt has increased every year, but it has exploded in the last 25 years. In 1960, the debt was $286 billion, equivalent to $1.9 trillion today, adjusted for inflation. In 1980, at $950 billion, it was still equivalent to about $1.9 trillion, adjusted for inflation.
The $11 trillion debt we will be carrying soon is more than $35,000 for every man, woman and child. The federal government will be spending about $500 billion per year on interest on the national debt. That’s nearly as much as is spent on education, more than is spent on welfare programs, far more than is being spent day-to-day on the wars in Iraq and Afghanistan.
Running up the debt has weakened the dollar, weakened our bargaining position with nations that hold our debt and is diverting money from necessary programs to interest payments that would have been unnecessary if our nation’s leaders had made an honest attempt to live within our means.
Perhaps this $1 trillion addition will get peoples’ attention.