Federal debt: The coming crisis

In the end, it will go down as “a noble failure,” said The Economist in an editorial. President Obama’s bipartisan budget-deficit commission submitted its final report last week, providing a detailed blueprint for slashing nearly $4 trillion from the next decade’s deficits. But the plan—formulated by co-chairmen Erskine Bowles (Bill Clinton’s White House chief of staff) and former Republican Sen. Alan Simpson—was approved by only 11 of the 18 commission members, short of the 14 votes required to formally send it to Congress. Obama and Congress “are now free to borrow ideas” from the report, which proposes cutting the annual deficit in half by 2015 by raising the Social Security retirement age, scrapping popular tax deductions, and capping military spending. Clearly, the U.S. still doesn’t have the “critical mass” of political will needed to take on such “sacred cows,” said Michael Hirsh in National Journal. We probably won’t, until our massive, mounting debt plunges the country into a major crisis—the collapse of the dollar, or China’s refusal to buy any more Treasury bonds.

It could happen sooner than we think, said Kathleen Parker in The Washington Post. Consider this: Just 12 years ago our total debt was 35 percent of gross domestic product—and shrinking. Now the International Monetary Fund projects federal debt could rise to 100 percent of GDP by 2015. That’s sheer madness. We’re quickly evolving into a debtor nation, our economic power “eclipsed by developing nations” such as China and India, leaving our “global clout” badly diminished. Soon, we may not be able to borrow enough money to fight necessary wars and to take care of our own citizens. “What happens when the lights go out?” In America, “the most powerful nation on earth,” we may soon find out.

Not necessarily, said Ross Douthat in NYTimes.com. The Simpson-Bowles plan was a necessary first step in a longer process of creating a consensus for cutting spending and raising revenue. Through the debate on these proposals, we learned what liberals and conservatives see as deal breakers and where they’ll give ground. Maybe there’s hope for us yet. If there is, it’s up to Obama to create the missing political will, said Steven Pearlstein in The Washington Post. Americans are hungry for leadership—and open to shared sacrifice that would restore the country’s economic greatness. To rebound from his recent “political drubbing,” the president should demonstrate real “audacity” and make reducing the debt his “defining issue.”

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