A bitter taste of things to come
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Here's what's scariest about the financial crisis.
"It's not as serious a problem as the unsustainable budget path that we've already put in place," says Robert Bixby, executive director of The Concord Coalition.
The coalition was formed in 1992 by Republicans and Democrats outside of government who wanted to rein in the national debt. They haven't come close, and now it appears we're going to tack on another $700 billion. That should take us above the $10 trillion mark, just to get the economy back to even. We hope.
"We're seeing on Wall Street the consequences of being overleveraged and not being honest about it," Mr. Bixby said. "And these are things we've been warning about on our fiscal wake-up tour."
America has overpromised on Social Security, Medicare and Medicaid. It has no realistic way to pay the tab when those bills come due, but Congress has no intention of scaling anything back. That would irritate voters.
Until trillions of dollars of phony wealth in homes and stocks came crashing down, tunnel-visioned bankers in the private sector also took on monumental debt. Their thinking, if you could call it that, was that housing prices would always go up and so not many people could default.
It's ironic that Washington, D.C., the epicenter of short-term thinking, is now the only potential savior.
Congress seems to be growing backbone because frightened voters finally demand some. The Bush administration is amending its original proposal on this ultimate faith-based initiative. (If this proposal isn't a Hail Mary pass, what is?) Both parties in Congress are saying that Wall Street firms circling the drain can access our billions only if they agree to curb executive pay, give us a stake in the companies, or both.
Of course, even if this bailout works and the economy stabilizes, it also grows the debt monster that may eat our children. To update the famed quote from the late great Republican senator from Illinois, Everett Dirksen, $200 billion here and $700 billion there and pretty soon you're talking about real money.
Not that the consequences are entirely in the future. For years, foreign lenders have provided billions to shore up the federal budget, but they're becoming rightly wary about investing in dollars. We've already seen how a sinking dollar drives up the price of oil.
"They know the federal government is going to come to them to borrow these funds and they have to wonder what the heck we're doing here," Mr. Bixby said. "This is not a very attractive case for investing in the United States. The case you have to make is, 'Lend us $700 billion or so because we want to buy toxic assets to prevent an economic meltdown.'"
I've gotten Nigerian e-mail more tempting than that.
Foreign lenders may demand higher interest rates or continue to devalue our currency, Mr. Bixby said. They might play the role the International Monetary Fund has with Third World countries, saying, "You have to get your fiscal act together before we lend you any money."
He made a point to say he is not suggesting this policy, but it's possible foreign lenders may simply ask, "Why can't your own taxpayers bail you out? We're paying more taxes here in Europe, so welcome to the club."
We've long lived with the lie that we can cut taxes, fight two wars, and shrug off all the entitlement bills that are comfortably in the future. At almost any time, one can turn on AM radio and hear some clown from the Close Cover Before Striking School of Economics send us for another ride in Laffer's Fantasyland, explaining against all contrary evidence that cutting tax rates always leads to more federal revenue.
It's a curiosity of neo-"conservatism" that it can simultaneously endorse going deeper into hock to finance an open-ended war, but adding pennies on the dollar to the tax bills of families earning more than $250,000 is a sacrifice too great to bear.
Deficits matter. Our debt and its interest squeezes out money we might spend on everything from health care to national security. But this particular $700 billion tab won't be accompanied by paring elsewhere. That means, as Jay Lynch of Upper St. Clair called to report, the tab works out to roughly nine grand for every family of four.
The kids handed this tab deserve a fair deal, which means payback from Wall Street.
First Published September 25, 2008 12:00 am