Many of the factors that provoked the current recession appear to be easing. Big banks are on more solid footing. The stock market grew steadily over the past year. Retail sales and manufacturing are beginning to rebound. Even the unemployment numbers are showing signs of turning around.
But one critical issue threatens our long-term prosperity to a greater extent than nearly anything else: the accumulating mountain of federal debt.
It is currently at $12 trillion and will grow rapidly over the next decade, even without a national health care bill whose claimed budget neutrality is hotly disputed.
By 2019, just the interest on our national debt will amount to $700 billion a year, more than we spent on national defense last year even as we fought two foreign wars, said Colorado Sen. Mark Udall.
But it’s not just the total dollar figure that is staggering. It’s how that compares to the overall economy.
If nothing is done to curb its growth, our debt will exceed 108 percent of our gross domestic product by 2026, according to a University of California economist quoted in The Wall Street Journal Monday. That will top the record for debt as a percentage of GDP that this nation set at the end of World War II.
The great difference between then and now is that during the 1940s, most of our debt was held by U.S. citizens who purchased savings bonds to aid the war effort. Now, however, we borrow more and more from foreign investors, especially China. And they are getting increasingly nervous. They are like local bankers who see one of their customers fall ever deeper in debt with a home mortgage, car payments and credit-card purchases — total interest payments are threatening to exceed income.
The result could be economic stagnation if debt takes more and more money out of circulation and, as a result, new spending is eviscerated, or runaway inflation if huge amounts of currency are printed to cover the debt.
The good news is there’s growing concern in many parts of the country about the debt. In Monday’s Wall Street Journal, an article noted that federal debt and deficit were major topics of concern Sunday during the annual meeting of the American Economic Association. Sen. Udall and his Colorado colleague, Sen. Michael Bennet, are part of a bipartisan group of senators who last month pushed for creation of a special commission to develop a plan for reducing the debt.
The bad news is there’s not a lot of willpower in Washington to attack debt. It’s a problem for future politicians — and future generations of taxpayers — many seem to think. Action may occur this month with the bipartisan commission Udall and Bennet support, but it faces potential opposition from leaders of both parties. The recession and health care reform continue to drive ideas that are more likely to expand the national debt than curtail it.
Any real effort to rein in debt — by cutting spending or raising taxes or some combination of the two — will almost certainly slow economic growth. No one wants to see that occur as the nation is still struggling to come out of the recession.
But unchecked debt will have a much more crippling effect in the long term. Voters need to support politicians who offer solid ideas for dealing with debt, not those who just pay lip service to the idea.