By: Peter Roskam
In these uncertain economic times, many Americans are asking important questions about the nation’s finances. Why were taxpayers asked to finance a $700 billion bailout of Wall Street – with up to $750 billion more on the way, according to the president?
Is it appropriate for the government to own portions of our biggest banks? And what happens if all this “stimulus” spending doesn’t improve the economy? Even beneath these important questions, there’s another, more fundamental issue that also needs to be addressed: Who will bail out the institution that has been trying desperately to bail out the economy – the federal government?
Let me explain. The Troubled Asset Relief Program bill; various bailouts to financial institutions, such as Fannie Mae and Freddie Mac; and passage of the $792 billion “stimulus” bill designed to improve the economy will lead to a federal deficit for the current fiscal year of nearly $1.8 trillion – more than triple the previous record.
Think that math is daunting? The long-term math is much worse, as the federal government’s impending entitlement obligations will far outstrip the losses of any subprime lender. Medicare faces 75-year obligations of $36 trillion, according to the trustees’ latest report. Add in Social Security, and the total rises to $56 trillion. That amounts to $746 billion – more than the size of the original TARP bill – per year, every year, for three generations.
Of course, these deficits have meaning only if someone is willing to finance them – and in the future, investors may not be inclined to do so. With the global economy in turmoil, investors in recent months have turned to Treasury bonds to guarantee the safety of their investments. Five, 10 or 20 years from now, businesses in a stronger China and India or an aggressive Russia may not want to finance Americans’ pension and health care costs and might choose instead to diversify their portfolios elsewhere.
The results of a loss of confidence in the dollar could be catastrophic. A rapid fall in the dollar would raise the price of imports, sparking inflation fears. Rising interest rates would increase the federal government’s borrowing costs at a time of fiscal stress. Also, higher financing costs for homeowners could depress the nation’s real estate market once again. If you think the mortgage crisis of the past two years was bad, America’s fiscal crisis, left unchecked, could unleash a real estate crash of even greater proportions.
The mortgage crisis has laid bare one truth, unpleasant for politicians to state but accurate nonetheless: Over the past several decades, we as a nation have spent more than we could afford. Doubtless there were abuses within the mortgage industry, and some people likely were misled. But the fact remains that some Americans bought too much house, too much car, too many clothes or supplies for their budgets.
Changing those habits will require collective sacrifice, self-discipline – and yes, no small share of pain – but it is essential for the long-term health and stability of our economy and our nation.
Similarly, the federal government needs to reform its spending obligations to make sure our promises to America’s seniors align with our future economic resources. These actions should look to slow the growth of health care costs and tackle the difficult choices head-on.
Unfortunately, President Obama’s proposed budget actually would increase heath care spending – a poor way to control the explosion in health costs. Moreover, the explosion of federal debt in the budget plan – $3.2 trillion in the next two years alone – will hinder the federal government’s ability to take swift and decisive action reforming entitlement spending.
Some are convinced the best way to slow growth in costs and save Medicare is for the government to spend yet more money and create new health care entitlements. The logic of this reasoning escapes me: After all, who would try to lose weight by eating more? Instead, we should focus first on saving Medicare for seniors and using Medicare as a model to slow the growth of health costs nationwide rather than enacting new budget-busting programs – only for the government to impose controls on patient care a few years from now, when exploding entitlement costs bring the federal budget to its knees.
For good and for ill, the last Congress passed in record time a $700 billion bailout for financial institutions in an attempt to stanch the current economic crisis. I only hope the current Congress will act half as quickly to stop the bleeding on America’s entitlement crisis so future generations won’t end up wondering why we didn’t act when we could.
Peter Roskam, Illinois Republican, is a member of the House of Representatives’ Ways and Means Committee.