WSJ: Debt and Inflation Threaten U.S. Security… Servicing costs could soon reach $1 trillion a year, which would crowd out spending on defense.
By Jeb Hensarling
The Wall Street Journal. Feb. 22, 2022 – Excerpts:
The national debt this month reached $30 trillion. Not only is this the largest debt in U.S. history in dollar terms, but the ratio of debt to gross domestic product is 119%—the largest it’s ever been. And things are only getting worse. The Congressional Budget Office predicts that the mammoth debt-to-GDP ratio will double over the next three decades. The Highway Trust Fund will likely become insolvent in 2027. Medicare Part A will run out of money in fiscal year 2026 and Social Security will go bust in fiscal 2033.
Now Americans are beginning to experience inflation, one of the primary costs of rapidly growing levels of national debt… To help finance $5.9 trillion of Covid relief, the Federal Reserve purchased Treasury debt from third parties, typically large banks known as primary dealers, and then with a few keystrokes the Fed simply created a new set of credits on its books for the sellers. Because of the additions of these credits, in two years the Fed’s balance sheet has doubled to almost $9 trillion, creating a risk of significant and sustained inflation.
Some policy makers and economists maintain that sustained harmful inflation can never happen here. They argue that because the dollar is the world’s reserve currency, investors will always want U.S. debt and the Treasury will always be able to roll that debt over as it matures. But “always” is a long time.
[snip]
Those who believe there can never be a debt crisis should look no further than the last financial crisis. For years, policy makers told us that Fannie Mae and Freddie Mac, the largest players in the housing market, would always remain solvent and strong. They were wrong. Fannie and Freddie failed, the housing market crashed, and the economy was brought to its knees. Fannie and Freddie weren’t problems until they were. Just as the national debt may never be a problem until it is.
We’ve had years of denial, delay and neglect in confronting the unsustainable national debt. Today’s high rate of inflation is simply a foreshadowing of what could come if the U.S. is forced to monetize the bulk of its national debt. Reduced economic growth, a diminished national defense, insolvent social safety-net programs and recession loom as well. The 9/11 Commission concluded the national security establishment suffered from a “failure of imagination.” Let’s hope the same doesn’t prove to be true when it comes to fiscal security.
Mr. Hensarling served as a U.S. representative from Texas (2003-19) and chairman of the House Financial Services Committee (2013-19).
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