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If future historians look back on the ruins of the American economy after a U.S. bond crisis struck in the second decade of the 21st century, many causes will be noted. Obviously, it will be seen that for decades before the catastrophe, the U.S. was spending vastly more than it could afford on government health and retirement programs.
And, just as after the Great Depression, Pearl Harbor and Sept. 11, 2011, blue-ribbon commissions will be incredulous that all the telltale signs of the coming disaster were in plain view, yet were ignored.
But the central indictment for the catastrophe that ended American prosperity and world dominance will be justly laid at the feet of those Washington politicians who continued to play for short-term partisan advantage, even as the economic earth was beginning to move under their feet.
Of course, it may be claimed in partial mitigation of their guilt that the politicians, like the witch in Goethe’s “Faust,” had become acclimated to the noxious brew: “Here I have a bottle. From which, at times, I wet my throttle; which now, not in the slightest, stinks.”
But the cup of Washington partisan politics is raising a higher and higher stink among the public. And if the crisis comes while some Washington politicians continue to get drunk on their business as usual brew — the public is likely to choke on the defense of “governing while drunk on partisanship.”
Former Clinton Secretary of the Treasury Robert Rubin warned in January that most dangerously, there is a risk of disruption to our bond and currency markets as a result of much higher interest rates due to fiscal imbalances, fear of inflation and efforts to monetize our debt (print money). Significant deficit premiums on bond market interest rates would follow and seriously impede private investment and growth, causing an economic crisis.
To look more deeply just at the impending interest burden on the federal budget, consider the assessment of economic analyst Craig Steiner last week: “The problem is that the United States, with a $14 trillion national debt, cannot afford to pay a higher rate of interest. President Obama’s budget proposal outlines interest rates of 3.2 percent this year, going up to 5.3 percent in 2021, and that produces interest payments of $205 billion this year to $928 billion in 2021. The projected annual deficit is going from $841 billion in 2015 to $1,116 billion in 2021. That means in 2021, 83 percent of the money we borrow will be to pay interest on money we’ve already borrowed.
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