DE BORCHGRAVE: Saving America's future

The Washington Times

Thursday, April 23, 2009
DE BORCHGRAVE: Saving America's future

Arnaud de Borchgrav
COMMENTARY:

>From right to left, Washington's think tank senior economic fellows agree the capitalist system is broken.

But few agree on what comes next. Borrow-and-spend must now give way to save-and-invest. Clearly, the mammon of profits-before-people has been knocked off its pedestal. Borrowing $2 billion to $3 billion a day from other countries (mostly China) to maintain the world's highest standard of living, based on conspicuous consumption at a time of growing world shortages, is no longer viable. New York's Federal Reserve says the United States borrowed $4.4 trillion in the first six years of this decade to finance its current account deficits - 85 percent of total net borrowing worldwide.

Obama administration palliatives, according to Bloomberg, now total a little more than $8.5 trillion ($300 billion on Fannie Mae and Freddie Mac, American International Group Inc., and Bear Stearns & Co. Inc. (now part of JP Morgan); $300 billion on Citigroup Inc.; $700 billion on the Troubled Asset Relief Program (TARP); $800 billion on Fed-directed asset-backed debt-purchase programs; $2.3 trillion on Fed commercial paper programs; and $2.2 trillion on other Fed lending and government commitments).

The buy-on-rumor-sell-on-news speculators are understandably confused. They read - or more likely hear - that banks are still holding the bad assets that the original $700 billion TARP was supposed to buy. Thus, the new "Plan B" may include going back to "Plan A," this time around forcing the government to actually buy those bad assets.

Despite all this, the public is assured the stimulus package of $787 billion will eventually revive the U.S. economy. And when it does, says Money Morning, mourning will be declared as the hugely inflated bubble in Treasuries bursts.

Meanwhile, "Saving America's Future," as spelled out by 24 of the nation's most illustrious names (12 from each party) in "A Challenge to the American People," released by the Center for the Study of the Presidency and Congress (CSPC), warns that worse news is yet to come because today's economic reality is "only the tip of the iceberg." And if we do not act now - in everything from "structural challenges in financing our government" to "ensuring quality public education, competing globally for jobs, extending health care while reducing its cost," and much more - "a far greater crisis awaits below the surface and threatens to sink our ship of state."

Clearly, the United States cannot continue building up the national debt, now almost $11 trillion, when "the government has committed to over $56 trillion in liabilities and unfunded promises," says one of the key findings. The nation's physical infrastructure "is crumbling around us ... neglected ... to such a degree that it would cost $2.2 trillion just to bring it up to 'good' condition."

While the economy was losing 23,000 jobs each day, pushing unemployment above 8 percent, the highest in 25 years, household net worth decreased $11.2 trillion (in 2008 alone). During the last year, says the CSPC report, about $50 trillion in the value of financial assets, equivalent to one year of the world's gross domestic product, was destroyed, shrinking the world economy in 2009 for the first time since World War II. The value of equities in retirement plans dropped by $4 trillion in a year.

The tax code contains 3.7 million words, and "current fiscal and financing practices are unsustainable." The federal government is "increasingly dysfunctional," say CSPC's 24 wise men and women, "politically and ideologically divided, shortsighted, compartmentalized, bureaucratic and arcane. Both major political parties seem unable to agree on the approaches necessary to address the structural challenges confronting the country. To make matters worse, these impediments to effective leadership seem to be growing by the day."

America is widely acknowledged as having one of the worst K-12 education systems in the world, yet it spends more on it per student than all but two other nations, says CSPC. More than 1.2 million American students drop out of school every year - or 6,000 every school day. And only 56 percent of students who enroll in four-year colleges after high school manage to earn a bachelor's degree.

"The more our children are exposed to our educational system, the more poorly they perform on international tests," said the report. And as President Obama said before the joint session of Congress, "This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow."

Addressing energy dependence and the environment, the report says the United States, the world's largest energy consumer, produces 10 percent of the world's petroleum but consumes 24 percent. The International Energy Agency forecasts world demand for energy could grow by 45 percent by 2030. "The time has arrived to shift the country's energy signature toward clean energy sources, greater levels of domestic supply, and increased innovation. At the same time, sustained investment is required across the entire energy spectrum, and around the world, to avoid new oil supply and price shocks over the next decade."

"Modernizing America's Infrastructure" produced a "D" on the most recent report of the American Society of Civil Engineers and now requires $2.2 trillion over five years to shore up more than 25 percent of the nation's bridges that are structurally deficient or functionally obsolete.

Deficient roads cost the economy $78.2 billion in time and fuel. The cost of aviation delays will rise from $9 billion to $30 billion by 2015. But the stimulus package contains billions of infrastructure spending, including $27.5 billion for highway construction; $16.5 billion to modernize public infrastructure; $18 billion for clean water, flood control and environmental restoration; and $17.7 billion for transit and rail.

As for modernizing the U.S. military, the emergence of a global multipolar system out to the year 2025 will be a "relative certainty," according to the latest National Intelligence Council assessment. Shrinking economic and military capabilities may force the United States into a difficult set of trade-offs between domestic and foreign policy priorities," the CSPC study concludes.

America is faced with three options - Business-as-Usual; Muddle-Through; "Transformational" Future. The first means that each American's share of the federal financial burden, currently $184,000, will continue to grow.

Muddling through will postpone the toughest challenges - i.e., health care reform - to where we need to be today to a dangerous future of social upheaval.

Transformation will require citizens to shed their role as spectators and demand that their leaders "set aside short-term interests and take bold, nonpartisan steps, promoting the spirit of creativity, innovation and entrepreneurship" that has carried the United States for 233 years.

Arnaud de Borchgrave is editor at large of The Washington Times and of United Press International.