America is the wealthiest nation in the history of the world. Our annual Gross Domestic Product is nearly $20 trillion, nearly double the second place nation (China) and more than the Japan, U.K., Germany, India and France combined. Not surprisingly, the U.S. government spends nearly twice as much as any government on its people and priorities.
With all this wealth, you would think it should be no problem for the U.S. to balance its budgets. Think again. America is nearly $20 trillion in debt, which is more than our entire economic output for a year. This week, Congress added around $500 billion in new spending, and passed a $1.5 trillion ten-year tax cut last month. These actions pushed next year’s projected deficit to almost $1 trillion.
What the heck is going on? Why, despite our massive wealth, are we piling on debt after debt after debt? And, what is the risk of doing so? The answers are depressingly clear.
Like Veruca Salt, America “Wants it Now”
In Willy Wonka and the Chocolate Factory, a group of lucky children win tickets to tour the amazing chocolate factory. One of the lucky kids is Veruca Salt. She is the daughter of rich parents who give her whatever she wants. Veruca is never satisfied, and whines at the smallest deprivation. She makes her father buy thousands of Wonka Bars to guarantee that she gets a coveted golden ticket to the factory. She gets in. But, when Willy Wonka won’t sell a golden goose to her father, Veruca whines, stomps, and complains. She wants the goose “now.” She’s so obnoxious that Wonka ejects her from the plant.
America’s politicians (and we Americans) are so like Veruca. We have unparalleled financial resources, and can afford anything we want if we are willing to wait for a short time. But, like Veruca, we can’t wait — we have to have it right now. We aren’t willing to only fund our greatest priorities — instead, we pretend like there are no trade-offs to be made. So, we borrow money from countries (like China, Japan and tiny Belgium) that are much smaller than we are. Like Veruca, our childish whining is obnoxious and has real effects.
We Don’t Understand the Consequences of “One More Wafer Thin Mint”
In Monty Python’s Meaning of Life, there is an unforgettable scene involving a grotesquely obese man who just can’t stop eating. After finishing every item on the menu and drinking obscene quantities of alcohol, he finally pronounces himself done. The Maîtrie d’ approaches the man and offers him “just one more wafer thin mint.” The man accepts the mint, eats it, and proceeds to explode.
I’m afraid America is perilously close to suffering the obese man’s fate. We have piled on significant debt for two generations, and we haven’t yet seen the negative consequences of that debt. Additional government spending has allowed us to fund it all — Social Security and defense, Medicare and roads, tax cuts and energy subsides . . . the list goes on. We’ve spent on all the items on the liberal and conservative wish list, and cut taxes for both the rich and poor.
We’ve gotten away with this for many reasons. First, America has the world’s largest and most productive private sector, and that has provided room for politicians to raise spending. America’s growth and productivity also makes it an attractive place for foreign investors — this investment soaks up America’s debt. Additionally, the American dollar is the world’s dominant currency, which means that there is a constant demand for dollars across the globe. So long as investors continue to hold dollars as their safe haven, the U.S. can get away with these large deficits.
But, like every other dominant economy in the history of the world, America’s time at the top will end. Eventually, we will eat one too many mints, and the consequences will be swift. History has shown that the investors turn quickly and unexpectedly against their debtors. Greece and Argentina are suffering the consequences of their over-indulgence – years of austerity, slow growth and social unrest. One day, America’s “wafer thin mint” moment will arrive — and the explosion will be catastrophic.
“The Borrower is Slave to the Lender”
America’s political class shrugs at this accumulation of debt — as Vice President Dick Cheney famously said, “no one cares about deficits.” But there is an iron reality in relationship between the those who lend and those who borrow. It is found in Proverbs 22:7, in which the Lord states plainly: “the borrower is slave to the lender.” This is very plain in the personal realm — in order to get a house loan, I must mortgage my house and pledge my good name. If I fail to pay the debt, then I will lose the house, ruin my credit, and might even have my wages garnished to pay back any excess amount.
On the national level, it’s a bit more complicated, but the dynamic is ultimately the same. America’s national debt is funded by issuing bonds. 45% of that debt is held by foreign countries, with both China and Japan each owning more than $1 trillion of America’s debt. When we seek to exert economic and foreign policy leverage over those nations, our debt situation limits our influence and power. The size and power of America currently limits the damaging effect of our debts, but the costs are real, corrosive and will increase over time. When our creditors lose confidence in America’s ability to grow and ultimately repay the debt, we will feel the sting.
Whistling in the Wind
Sadly, this post seems irrelevant. Neither the people nor their politicians have any interest in the Unites States living within its means. Most are content to be Veruca or the obese man. The consequences of continuing on this course are real and severe. I hope that we change our view before others change it for us.