Much like it picked Amazon Inc. Chairman Jeff Bezos in 1999 because he personified the field of e-commerce, Time magazine should choose Uncle Sam for its next Person of the Year, since he is the nation’s quintessential subprime borrower.
While Uncle Sam will not lose the White House through foreclosure, the seriousness of our financial problems deserves attention.
Those problems are compounded by the trillions of dollars that we owe to foreigners. That debt to foreigners stems primarily from our huge trade deficits that run currently about $800 billion annually. To fund our financial addiction we require a $2 billion daily fix.
To put the problem in perspective, the Federal Reserve cannot lower interest rates much further because we need to maintain the international trading value of the dollar. Let me state it differently: Since we need on an ongoing basis to finance our current trade and budget deficits, we need to reassure our foreign creditors that their dollar holdings will not devalue much further.
We must realistically expect that foreign investors will grab huge stakes in American equities and real estate. To get rid of their wheelbarrow stockpiles of dollars, these countries have started meaningful government investment pools, called sovereign funds, to focus on private investments. Dollar holdings of foreigners will grow from the current $2 trillion to a $12 trillion war chest over the next decade.
The major holders of dollars will be countries such as Taiwan, China, Japan, Singapore, Saudi Arabia, Canada and Abu Dhabi. Our so-called “get tough” policy with these creditors is a cruel hoax on the American public. The thought that America, a debtor nation, can demand stiff terms from a creditor is ludicrous.
Uncle Sam’s 2009 fiscal year budget, $3.1 trillion, underscores my concerns about his wastefulness. Moody’s, one of our most respected credit agencies, forecast the American credit rating could decline to A from AAA within a decade. The decline would motivate our international creditors to limit their dollar exposure. Moreover, many astute observers such as Pete Peterson, the former Secretary of Commerce, predict ominously that without a 180-degree change in policy, the American credit rating will continue to decline to junk bond status within a generation. We cannot expect creditors to hold significant United States dollars if our credit rating declines that far.
Not only does our $3.1 trillion fiscal year 2009 budget increase our deficit spending by at least $400 billion to $500 billion, but it also lacks meaningful allocations to new social programs in the fields of education, welfare, energy and national health.
Proposals to initiate meaningful social programs will sadly end up in dustbins because Social Security, Medicare and Medicaid are already trillions of dollars underfunded.
Military hawks could meet their own Waterloo. We cannot afford to expand expenditures on our wars in Iraq or Afghanistan or national security. Joseph Stiglitz, a Nobel Prize-winning economist, wrote in his new book “The Three Trillion Dollar War: The True Cost of the Iraq Conflict” that the administration has recklessly understated the true cost of our wars in Iraq and Afghanistan. Stiglitz pinpointed the fallacy of the administration’s cost estimates. He highlighted the enormous Social Security costs and medical rehabilitation costs for returning veterans over the next 50 years.
Sadly, we have not been responsible fiduciaries for the next generation. We will leave our children and grandchildren such a mountain of debt that they cannot reasonably expect to achieve even a comparable standard of living to our generation.
During this presidential election year, no mainstream politician has adequately addressed our fiscal dilemma because discussing the state of the economy and balance sheets does not sizzle on the campaign trail.
The leading presidential candidates have sidestepped that discussion as well, but the facts will hit them with monetary shrapnel as soon as the winner takes the oath of office.
In 1961, John Kennedy in his inaugural address highlighted that a new generation of Americans must take responsibility for our country’s future. We now need new generational leadership in the 21st century to stop the financial decline of our nation. Thus, we must recognize that today’s generation must address a whole host of financial problems. This would include our sizable budget deficits and trade deficits in addition to the trillions of dollars of underfunded liabilities stemming from our promises to future generations in the areas of Social Security and Medicare.
Originally published in the Sarasota Herald-Tribune
