BUCHANAN: Is
America's financial collapse inevitable?
Posted: January 14, 2010
8:10 pm Eastern
We were blindsided. We
never saw it coming.
So said Goldman Sachs CEO Lloyd Blankfein of the financial crisis of 2008. He likened its probability to four
hurricanes hitting the East Coast in a single season.
Blankfein was reminded by
the chairman of the Financial Crisis Inquiry Committee, Phil Angelides, that
hurricanes are "acts of God." Financial crises are manmade. Yet
Blankfein was backed up by Jamie Dimon of JPMorgan, who said, "Somehow, we
just missed ... that home prices don't go up forever."
The Wall Street titans thus conceded they did not foresee the
housing bubble ever bursting and they did not consider the possibility of a
collapse in value of the sub-prime mortgage securities piled up on their books.
Backing up Blankfein's plea
of ignorance and incomprehension is this: The crisis killed Lehman Brothers and
would have killed every one of them had not the Treasury and Fed, neither of
which saw it coming, either, intervened with hundreds of billions in bailout
cash.
Yet there were those who
warned a housing bubble was being created like the dot-com bubble; others who
predicted the Empire of Debt was coming down – as, today, there are those
warning that the United States, with consecutive deficits running 10 percent of
gross domestic product, is risking an eventual default on its national debt.
The warnings come from the
Committee on the Fiscal Future of the United States, chaired by Rudolph Penner,
former head of the Congressional Budget Office, and David Walker, former head
of the Government Accountability Office and author of "Comeback America:
Turning the Country Around and Restoring Fiscal Responsibility."
With that share of the U.S.
national debt held by individuals, corporations, pension funds and foreign governments having risen in 2009
from 41 percent to 53 percent of GDP, Penner and Walker believe it imperative
to get the deficit under control. Unfortunately, it is not possible to see how,
politically, this can be done.
Consider. The five largest
elements in the budget are Social Security, Medicare, Medicaid,
defense and interest on the debt.
With interest rates near record lows, and certain to rise, and
back-to-back $1.4 trillion deficits, this budget item has to grow and has to be
paid if the U.S. government is to continue to borrow.
Second, with seniors on
fire against Medicare cuts in health-care reform, it would be fatal for the
Obama Democrats to curtail Social Security or Medicare benefits any further
this year. Next year, they will not only lack the congressional strength but
any desire to do so, after their anticipated shellacking this fall.
The same holds true for
Medicaid. The Party of Government is not going to cut health benefits for its
most loyal supporters. Indeed, federal costs may rise as state governments, constitutionally
required to balance their budgets, cut social benefits and beg the feds to pick
up the slack.
This leaves defense. But
the president is deepening the U.S. involvement in Afghanistan to 100,000
troops, and the military needs to replace weaponry and machines depreciated in
a decade of war.
Where, then, are the
spending cuts to come from?
Can the administration cut
Homeland Security, the FBI or CIA after the near disaster in Detroit? Will
Obama cut the spending for education he promised to increase? Will he cut
funding for food stamps, unemployment insurance or the Earned Income Tax Credit
in a recession? For the near term, the entitlements are untouchables.
Is this Democratic
Congress, which increased the budgets of all the departments by an average of
10 percent, going to take a knife to federal agencies or federal salaries, when
federal bureaucrats and beneficiaries of federal programs are the most reliable
voting blocs in their coalition?
What about tax hikes?
Obama has promised to let
the Bush tax cuts lapse for those earning $250,000 but has pledged not to raise
taxes on the middle class. Any broad-based tax
would be politically suicidal for him and his increasingly unpopular party.
But if taxes are off the
table, Afghan war costs are inexorably rising and cuts in Social Security,
Medicare, Medicaid and entitlement programs are politically impossible, as
pressure builds for a second stimulus, how does one reduce a deficit of $1.4
trillion?
How does one stop the
exploding national debt from surging above 100 percent of GDP?
America is the oldest and
greatest constitutional republic, the model for all the others. But if our
elected politicians are incapable of imposing the sacrifices needed to pull the
nation back from the brink of a devaluation or default, is democratic
capitalism truly, as Francis Fukuyama told us just two decades ago, the future
of mankind?
What the looming fiscal
crisis of this country portends is nothing less than a test of whether this
democratic republic is sustainable.