Foreign banks are dumping dollar reserves, while we gorge on cheap toys and bad pet food. Actually, our biggest "terrorist" threat is internal: Distorted values are downgrading our nation's "creditworthiness." We're like out-of-control kids with stolen credit cards, spending our future with no plans to repay.
Recently Robert Hormats, vice chairman of Goldman Sachs (International), appeared before the U.S. House Budget Committee to "discuss an issue of great economic, financial and national security importance to our country -- the growing dependence of the United States on foreign capital." Currently we import $1 trillion new debt annually, with no repayment plans. That's a historic break from over two centuries of American policy.
America's new faith-based guns-and-butter policy is hurting both guns and butter. The war is costing us $12 billion a month. Hormats examined the Congressional Budget Office's projections for domestic costs: "In 2006, spending on Social Security, Medicare, Medicaid and interest on the federal debt amounted to just under 60% of government revenues" and "if they continue on their current path, they will account for two-thirds by 2015."
Social security from $550 billion to $960 billion
Medicare from $372 billion to over $900 billion
Medicaid from $181 billion to $390 billion
Worse yet, these commitments will continue skyrocketing in later decades. The CBO projects the federal debt rising from 40% of GDP to 100% in the next 25 years: "Continuing on this unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security."
Hormats warns of the risks of this gross departure from Hamilton's principles: "Of late, the precedents and experiences of past generations have been cast aside. The 9/11 attacks were seen by many legislators as a license to spend more money on nonsecurity programs, and Americans have not been called to make sacrifices. Tax cuts and spending increased on politically popular security-irrelevant domestic programs have been enacted as if there were no expensive defense programs to be funded."
Hormats says America is now "relying on faith over experience, hoping that sustained growth will erase deficits and that the ballooning costs of Social Security, Medicare and Medicaid will be manageable in the coming decades without difficult reforms."
Yet economists now estimate these entitlements can only be "reformed" by either a cut in benefits or an increase in taxes greater that 40%. In short, today's faith-based economics is failing us.
