Never mind the future; the national debt is a nightmare right now.
Fiscal conservatives unwittingly sabotage themselves by warning that the $16.5 trillion national debt will impoverish America’s children and deliver unborn grandkids directly into Chinese slavery. While these dire predictions may come true, calling America’s massive indebtedness a challenge for future generations triggers relaxation about an immediate priority: curtailing federal spending and borrowing. By defending “the children,” budget hawks let big spenders invoke Scarlett O’Hara to justify their profligacy, at least until the tykes mature. “Cut the budget later,” spendthrifts propose. “Tomorrow is another day.”
Unfortunately, annual deficits and the accumulated national debt are harming American adults right now.
Uncle Sam is a morbidly obese glutton with a bottomless appetite. Once he has waddled away from the buffet table, little remains for everyone else but bread sticks and a few drops of soup.
David Malpass, a New York–based economist with Encima Global LLC and a former Reagan-administration Treasury official, understands how Washington crowds out private-sector borrowers in order to finance reckless spending and service yesterday’s debt.
Back in December 2009, Malpass explained in the Wall Street Journal how the Federal Reserve’s purchases of Treasury bonds and mortgage-backed securities caused capital to be “rationed not on price but on availability and connections. The government gets the most, foreigners second, Wall Street and big companies third, with not much left over.” Consequently, Malpass added, “for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of start-ups won’t launch due to credit shortages, in part because the government and corporations took more credit than they needed (because it was so cheap).”
Three years later, the symptoms that Malpass diagnosed linger like an unshakable low-grade flu. Between the end of September 2011 and the same date in 2012, total outstanding federal debt grew by 12.3 percent, while corporate debt expanded by 5.9 percent. Among non-corporate businesses, it fell 1.2 percent. For households, it dropped 1.9 percent. This is anomalous, Malpass notes, since “small business credit has usually expanded at a faster rate than corporate credit.”
This is a stunning plunge in lending to entrepreneurs and small businesses — the twin engines of job creation. “Credit markets once provided $300 billion to $550 billion net new credit per quarter to the non-financial private sector,” Malpass recently observed. “This helped fund new investment, inventories and other working capital needs. . . . Private sector credit increased only a net $66 billion in the third quarter of 2012.”
Why should banks risk capital on innovative new companies with brilliant ideas when Washington dutifully repays interest and principal on those boring old savings bonds — albeit with freshly printed cash?
And what happens when Uncle Sam devours most of the smorgasbord? Unemployment reaches 7.9 percent while the economy contracts 0.1 percent in the fourth quarter of 2012. Rather than hire people and expand their operations, business managers bite their nails and fret that paying off the debt will unleash a stampede of new taxes.
Touchingly oblivious to all of this, House Democratic leader Nancy Pelosi of California told Fox News Sunday last weekend: “It is almost a false argument to say we have a spending problem.”
If only Washington had a spending problem; it has a spending addiction. Congress and the White House should go cold turkey and terminate antiquated and destructive programs and agencies (e.g., depart the housing sector). From environmentally mundane western acreage to empty office buildings, federal assets should be privatized. Social Security and Medicare beneficiaries should face affluence tests. Also, the eligibility age of 65 to 67 should acknowledge that life expectancy is not 62 — as in 1935 (when Social Security began) — nor 70, as in 1965 (when Medicare commenced). Americans now typically stick around for 79 years. One need not read Ayn Rand to recognize this as musical chairs.
With all due affection for the children and grandchildren, they eventually will feel the wrath of Obama’s (so far) 55.5 percent national-debt hike. Meanwhile, trillion-dollar annual deficits, rampant borrowing, and the $16,519,246,387,401 national debt are punishing American individuals, families, and businesses today.
— Deroy Murdock is a Fox News contributor, a nationally syndicated columnist with the Scripps Howard News Service, and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.