The National Security Threat of Big Debt
Austin Bay | Oct 02, 2013
According to usdebtclock.org's on-line national debt counter, as I
begin to write this column the burden of the past is
$16,959,384,107,300.
Or it was, for a split second. Count to ten and the debt immoderately
climbs another $100,000. Though the numbers are approximate, past
promises made by Washington, and current spending directed by Washington
will breach the current debt ceiling of $17 trillion in a few short
weeks.
America's debt burden has been a looming national security threat for
decades, though one that defied headline writers. Because it doesn't
drop bombs, Big Debt could not be framed as an immediate crisis. Its
danger is long-term. Moreover, the enemy driving Big Debt is
problematic. To paraphrase Walt Kelly's Pogo cartoon character, the
enemy -- he is us.
National leaders have made the connection between economic strength
and a robust defense. Dwight Eisenhower did. His NSC-162/1 stated that
defeating the Soviet Union required the "maintenance of a sound, strong
and growing economy" that would underpin U.S. power for "the long pull"
of the Cold War.
In the 21st century, Big Debt may be the enemy. In August 2010, former
Chairman of the Joint Chiefs of Staff Admiral Mike Mullen told CNN that
"... the most significant threat to our national security is our debt."
Because the ability to arm, man and train a first-rate defense force is
"directly related to the health of our economy over time."
Greece's financial crisis, bred by unsustainable debt, demonstrates
how quickly economic decline shreds military forces. Moored Greek
submarines, grounded jet aircraft and military pay cuts of 37 percent
have not balanced budgets in Athens.
Economic decline, accelerated by past promises, also shreds social
safety nets and shatters cities. California towns like Vallejo know it.
When Vallejo went bankrupt five years ago, city leaders declined
political battle with the enormously powerful state public employees
retirement system, Calpers, and agreed to treat pension debt as
different from other municipal debts.
This week Vallejo announced that pension payments have disrupted its
restructured budget, despite cuts in city services. According to
Reuters, pension costs for Vallejo cities will rise from 33 to 42
percent in the next five years. Pensions are financial promises based on
work performed. California politicians, however, used generous pension
increases as a means for securing the political support of public
employee unions. These "sweeteners" have turned to fiscal poison.
Vallejo has encountered the long term and it is a constant crisis.
What can be done? If Vallejo doesn't seek legal relief from pension debt, other debt-ridden towns will.
In January the Congressional Research Service (CRS) issued a paper
entitled "Sovereign Debt in Advanced Economies." The study notes that
the debt of sovereign countries that can issue currency differs from
private debt or Vallejo's municipal debt. There are no international
bankruptcy courts "to provide creditors recourse against governments
that refuse to pay their debts." The ability to issue currency means a
sovereign government can print more money. This risk is inflation, which
reduces the "real" value of the debt but also devalues everything else.
The CRS paper outlined five policy options for addressing debt. (1)
Fiscal Consolidation: raise taxes, cut spending. (2) Debt Restructuring:
lower and extended payments (Greece). (3) Inflation. (4) Growth:
economic policies to spur growth. (5) Financial Repression: force
citizens to buy government bonds.
The most interesting discussion addressed Growth. The CRS agreed that
growth can be "stimulated" by "expansionary" spending, but that adds
more debt. Another option offered debt reduction, albeit long-term:
"pursuing structural reforms at the microeconomic level." These include
spurring competition in industries and liberalizing trade. It should
have added reducing tax complexity and regulatory burdens on small
businesses. Growth at the grass roots by encouraging entrepreneurs --
that is the way to attack national debt.
Ah yes -- the debt clock. $16,959, 523,401,634. I think. The last four digits flashed by as I blinked.
