The Bible famously teaches us in Romans 6:23 that the “wages of sin is death.” Given the warnings we have received recently from Wall Street and the International Monetary Fund, we should now realize that the wages of profligate spending is economic death.
In an unprecedented move last week, Standard & Poor’s downgraded the long-term debt outlook for the United States to “negative.” S&P noted that the lack of adults in the room willing to deal with ever-increasing national debt and long-term budget problems, such as unfunded liabilities represented by entitlement programs, could result in a lowering of long-term debt rating “within two years.” As you can imagine, Wall Street did not react well to the news as stocks fell by 1 percent the day the S&P released the statement.
Such an action would compound an already dire situation, for example, by increasing the costs associated with borrowing to finance debt. Perhaps even more troubling is that we may soon be overtaken by China as the world’s next economic superpower; a country that is also, and not coincidentally, America’s largest foreign creditor.
Two days ago, another economic bombshell fell. Brent Arends of MarketWatch noted on Monday that forecasts from the International Monetary Fund (IMF) anticipate China’s booming economy will “surpass that of America in real terms in 2016.” He calls the report the “end of the Age of America.” It is neither easy nor pleasant to digest such a profound statement; and many political observers will be quick to dismiss the prognosis as exaggerated or politically motivated. The fact is, such a warning is serious business, and is sloughed off at great peril.
Arends also notes the report, “provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.”
While the IMF itself chose not to highlight the report, there is no getting around the fact it underscores what fiscal conservatives, including many now in the majority in the House of Representatives, know to be true. The fact is, the American economy which, since the close of the Second World War has largely driven the world’s economy, has become a house of cards resting not on a sound, market-based economy, but on the porous sands of runaway deficit spending.
This is more than a wakeup call; and there’s more than sufficient blame to go around. In recent decades and with only a few brief exceptions, both major parties have repeatedly and openly refused to address the disastrous situation presented by so-called “entitlements” with locked-in benefits that have become essentially untouchable. They also have continued to fund virtually every major wish of the Pentagon; afraid otherwise to be labeled “soft on defense.”
The American people — long-accustomed to having the federal government as the option of first resort to address all manner of society’s needs, from education to road building and from the environment to health care — are equally to blame for this looming economic train wreck.
Whether there is even now the will to change course in order to avoid this slide to economic mediocrity — or whether there is even sufficient time to do – is unclear. Early signs are far from encouraging. The strident opposition to the GOP’s “Ryan Budget” by the Democrats in the Congress and the Administration indicates that party remains locked in its New Deal feet of concrete. The fact that already some Republicans in both houses are voicing hesitancy to support the tough-love measures in the Ryan Plan is even less encouraging.
The last, best hope for salvaging America’s once-bright economic future – which will dictate also our political future – will come from three sources: the grassroots of the American electorate, a handful of new governors who understand like Washington does not that a government cannot survive living beyond its means, and whoever the Republican Party puts forward as its standard bearer in next year’s election. Heaven help us if any of these three elements falter.
By Bob Barr – The Barr Code