Pay debt down, or pay up

CorrespondentJuly 30, 2009 

The brilliance of Barack Obama's presidential campaign was that it was chock full of reasons for hope and change but light on specific policies he would pursue as president. That allowed voters to define hope and change as they saw fit and to assume their priorities were high on Obama's agenda.

The president is employing the same tactic with his push to change this country's health care delivery system. As we heard yesterday at Broughton High School, Obama is a master at defining problems, but he's still short on specific remedies. That allows us to again assume our priorities are his priorities.

I have no problem being specific. Whatever package comes out of Congress must pay for itself.

On numerous occasions, the president has said he will not sign a bill that will add one penny to the federal deficit. Let's hope that's not negotiable, because the financial day of reckoning is here.

The first line in the Congressional Budget Office's (CBO) recent report on the long-term budget outlook says it all. "Under current law, the federal budget is on an unsustainable path -- meaning that federal debt will continue to grow much faster than the economy in the long run."

The primary reasons? Increased spending on Medicare, Medicaid and Social Security. But there's another unchecked spending measure that gets scant attention -- interest payments on the burgeoning federal debt.

In fiscal year 2008, gross interest payments on the federal debt totaled $460 billion, according to the Congressional Research Service. Only Social Security outlays, at $660 billion, were more costly. That's right, interest payments on the $10 trillion we carried back then (today U.S. debt is pushing $12 trillion) were more than the $454 billion spent on Medicare. By comparison, Medicaid was a bargain at $210 billion.

Think about this -- we are fast approaching the possibility that interest payments on the national debt could exceed our base budget for defense. In 2008, the base defense budget was close to $480 billion. Ben Franklin must be spinning in his grave.

When out of power, Republicans tend to be deficit hawks. In power, they justify spending beyond our means by putting deficits and debt in the context of a percentage of the nation's gross domestic product. (GDP) That's an accepted and useful international standard.

After we won World War II, the nation's debt was 113 percent of GDP. In other words, the United States owed more than it was worth. By 1974, the debt to GDP ratio had dropped to 24 percent. Over the past 40 years, the average has been 36 percent. In 2008, it stood at 41 percent. Because of the extraordinary spending the feds are engaged in now, CBO estimates the debt to GDP ratio will grow to 60 percent in less than two years.

This nightmare doesn't end. By the time a baby born today finishes his or her graduate degree in 2035, the debt ratio will approach 80 percent, primarily because of mandatory spending for Social Security, Medicare and Medicaid. And these numbers are under CBO's best case projections. I don't have the stomach for the much bleaker alternative scenario.

If Obama and Congress don't stop this debt death spiral very soon, the graduates of 2035 won't have a chance. The CBO warned they will be drained by taxes. Private credit to buy homes, expand businesses and send kids to college would come at interest rates unthinkable today and reminiscent of the Carter years.

Interestingly, the CBO warned against the government using inflation as a short-term fix that would allow the repayment of debt with cheaper dollars. That would only lead to hyperinflation "as occurred in Germany in the 1920s, Hungary in the 1940s, Argentina in the 1980s, Yugoslavia in the 1990s and Zimbabwe today."

I never thought I would see a government oversight agency warn that our fiscal policy could lead to Americans needing a wheel barrel full of dollars to buy a loaf of bread.

I'm resigned that some sort of health care reform is coming. I hope the president keeps his word that it will be deficit neutral. If not, health care could lead to the financial death of this country.

Contributing columnist Rick Martinez ( is director of news and programming at WPTF-AM.

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service