US debt should not be ignored

By The News Virginian Staff

Published: August 22, 2008

In less than 90 days, America will elect a new president, but what will be the significance beyond the banal? America’s national debt towers at $9.6 trillion, a fourth of the money owed to foreigners. Instead of fretting over this, or confronting it, Congress contemplates the sort of activity that caused this present state of affairs in the first place, this time a bailout of automakers as the dollar weakens and inflation swells. And the candidates dither.
Gerald P. O’Driscoll, a former adviser at the Federal Reserve Bank in Dallas, writes in The Wall Street Journal: “Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation.” For those requiring a translation – presumably presumed nominees Barack Obama and John McCain – this means that the U.S. might refuse to acknowledge or pay debt, a concept French in flavor and decidedly antithetical to America’s once-robust free-market spirit.
Already, ignoring debt’s spectral presence is pervasive beyond government’s halls. The middle class-debt-to-income ratio has more than doubled over the last 20 years to more than 140 percent. But that tendency’s deepening spread through Congress and into the Fed carries implications of greater hazard than politicians in either party have shown willingness to admit.
What happens, say, if inflation is not controlled – and assuredly it will not be if Congress insists on circumventing market corrections rather than enduring them – and the dollar devalues further, consequently pushing debts to the brink of repudiation? Foreign debtors will unload U.S. treasury notes, interest rates will rise and the economy will gasp for breath beneath the weight of soaring taxes to accommodate losses.
As O’Driscoll explains, Fed Chairman Ben Bernanke, at the behest of politicians eager to appear to be doing something about the housing collapse and the economy’s stumbling, has reversed more than two decades of work in restraining inflation and strengthening and then maintaining the Fed’s credibility. In the 1980s, President Reagan resisted calls to intervene as the economy trudged through the bog of a Carter-era recession. Inflation waned and the economy awakened. Alan Greenspan continued the trend, leveling interest rates and allowing banks to claw their way to recovery from the 1990s savings-and-loan crash.
Ignoring these successes, the Fed has poured taxpayer money into rescues of Bear Stearns, mortgage lenders and Fannie Mae and Freddie Mac and now readies to add Detroit’s Big Three to the list. President Bush, whose conservatism is weaker than his sentence structure, has complemented the binge by driving up the annual spending deficit with the puerile zeal of a teenager on spring break.
Do not expect candidates Obama and McCain to broach such subjects beyond kiddie-pool depth. The greater necessity is to determine how many homes McCain owns and whether he knows the number, or to identify which hollow-headed Hollywood icon most precisely matches Obama’s celebrity gravitas.
Discipline and restraint do not appeal to the affections of the electorate. Neither will the results of their lack if America’s next president fails to recover the lost qualities of his country’s better, wiser days.