Like most young conservatives in the United States I spent the past weekend at CPAC. Nearly every booth had some great handout, from key chains, to bottle openers, to books, but my favorite – a stress ball in the shape of the Capitol dome. One can’t help but look at the Capitol and be filled with a patriotic pride. A sense of awe at the stunning symbol of Democracy. Even in the shape of a foam-rubber mold it was still impressive. Then I turned it over and on a little gold sticker saw the word: CHINA.
Sadly, it is a perfect metaphor for America’s growing dependence on our primary creditor – China. President Obama’s recently released budget plan presented a bleak fiscal future. $1.6 trillion deficit this year, $1.3 trillion next year, $9.3 trillion in the next decade. According to the CBO, the debt held by the public will rise from 41% of gross domestic product in 2008 to 82% by 2019. This year each American will chip in more than $800 of their hard earned cash just to pay interest on the debt we’ve accumulated. It’s easy to see that this is a huge domestic problem. Huge deficits lead to higher interest rates on credit cards, mortgages, and loans which lowers demand for goods, and eventually slows economic growth. That’s the bad news.
The very bad news is that the huge debt sum must also be viewed as a threat to our global role and national security. After all, China’s political mentality and philosophy are far removed from the United States; as a business partner this may not be a concern, but as our banker, it presents unique problems.
Unfortunately, the president’s budget does little to curb our recent spending binge causing our fiscal dependency to grow by the day. The U.S. government will borrow 42 cents for every dollar it spends this year. China and Japan are the puppeteers manipulating the trillion dollar strings holding up our nation’s economy. But their willingness to lend us money will not last forever. As Congressman Mark Kirk said after visiting China,
“But privately, the key concern is, Should we buy any more U.S. debt? And over time, what’s happening is China is beginning to cancel Congress’s credit card, doesn’t want to lend much more money to the United States, and especially is worried about the Fed’s policy of printing money to buy new debt.”
The growing anxiety over the U.S. government’s fiscal largesse has already manifested itself in national policy. For instance, taxpayers now guarantee up to $5 trillion in Fannie Mae and Freddie Mac debt because of demands by Japanese and Chinese lenders. As Richard Haass, president of the council on Foreign Relations, says
“We’ve reached a point now where there’s an intimate link between our solvency and our national security.”
This is especially true in a politically charged atmosphere in which the U.S.-China relationship is being put to the test. Beyond the growing concern about our ability to repay the debt are worries over recent arms sales to Taiwan, increasing Chinese military build-up, and threats of a trade war over import tariffs. A China controls more of our debt they also gain a greater say over the price of our dollar. A decision to dump its foreign dollar reserves would lead to massive inflation and directly impact our ability to quickly respond to a crisis. Hard to fight a war when your checks bounce and your credit card gets declined.
The problem is not without a solution. We must stop denying that the national debt is a priority. We must get our fiscal house in order before someone comes in and cleans it for us. The blame for our current deficit does not fall solely on create a budget that tacitly accepts debts and deficits as the new baseline reality, Obama must reevaluate his spending plans. The three year discretionary spending freeze, which now looks like nothing more than a good sound bite, should have been the starting point for this fiscal discipline. Now we must go further. The Democrats’ health care reform and any other bill that dips heavily into the well of red ink should be voted down. Finally, we must get serious about entitlement reform. As the Heritage Foundation’s Brian Riedl notes, the U.S. will spend $26 trillion over the next 10 years on entitlement spending and interest payments alone!
We are the greatest nation in the world. It is time our balance sheet reflects this fact. If not, I wouldn’t be surprised if I’m left squeezing my stress ball while looking out my office window to see a Capitol Dome with the word “CHINA” in big bold letters.
- Brandon Greife, Political Director of the College Republican National Committee (hat tip to Amy Burggraf)