David Walker is the Paul Revere of the federal budget, sounding the alarm about galloping deficits long before it was cool to talk about making revenues meet obligations.
The C.P.A. and onetime Comptroller General of the United States has written a book, Comeback America: Turning the Country Around and Restoring Fiscal Responsibility.
In it, he assesses the country's precarious financial situation, along with his ideas about how to put Uncle Sam's fiscal house back in order.
Although he usually deals with macro-economics as the president of the Peterson Foundation,
we asked him to bring the concepts of the sprawling national debt down to size and tell us what every American should know about federal spending, debt, deficits, and why they matter to you. Here's what he said... Q. Say America was a person, how much credit card debt would America have? A.
Let's put it this way: Spending last year was about $3.5 trillion. The deficit was $1.42 trillion, which means that revenues were about $2.1 trillion. So $2.1 trillion is equal to their annual income.
The total national debt right now is $12.3 trillion. So we owe five to six times more than we make every year. But that's not the big deal.
In addition to that, there is another $45 trillion to $50 trillion in unfunded obligations that are off the balance sheet, which I think you ought to count. Medicare is the biggest part of it by far, and Social Security is a large part, too. So in reality, we owe between 25 and 30 times what we make every year. Q. Is that like a balloon payment for a person, looming out there and we know we're going to owe it?
It's kind of like the mortgage-related sub-prime crisis, where there were a lot of off-balance-sheet obligations and contingencies that manifested themselves. I draw a lot of analogies between the mortgage-related subprime and the government's finances, in that we want to avoid a super-sub-prime crisis. Q. For somebody going through their day, gassing up the car, dropping off the kids and going to work, why does the debt matter? How does it affect their lives? A
. We're mortgaging the future of the country, and their children and grandchildren. At the same time, because of the growth of spending, we're reducing the role of investments in our future because the budget on the discretionary side is getting squeezed at a time when America is facing growing competition in a global economy.
Also, there are two kinds of taxes: current taxes and deferred taxes. To the extent that we're not paying our way now, somebody is going to end up having to pay down the road. Q. When you say our children and grandchildren will pay for it, does that mean they will literally have higher taxes? A.
Much higher. If we don't end up reforming our ways, federal taxes will have to double within the next 20 to 30 years, just to stop the bleeding. Q. That money would go toward paying for our future obligations?
A. And toward paying interest on the federal debt. In fact within 12 years, without an increase in interest rates, interest on the national debt is expected to be the largest item in the budget. And you get nothing for it. Q. Who do we owe the money to?
A. Fifty percent is owed to foreign lenders. China is number one, Japan is number two, a block of oil producing nations comes next. Q. Do you think that affects our foreign policy toward China?
A. Yes, it does. It's already been manifested because one of the reasons American tax payers now guarantee $5 trillion in Fannie Mae and Freddie Mac debt is because the Japanese and the Chinese demanded it. Q. Is there a point at which China could say, 'We've decided to stop lending you money?'
A. What's more likely is that China will say, 'We're not going to lend you money unless you pay us higher interest rates.'" Q. What should people expect their elected officials to do if they're acting responsibly and taking care of the country?
A. In the short term the deficits are going to be high because of the recession, because of two wars, because of unemployment, but what we need to deal with is the structural imbalance. Once the economy recovers, once unemployment gets down, and the wars are over, we still have large and looming deficits. That's what threatens the ship of state.
President Obama says he wants to freeze a part of discretionary spending for three years. That's a good first step, but we're going to have to do a lot more than that. He supports pay-as-you-go rules, but there are big loopholes in the pay-as-you-go-rules. Thirdly, he talks about creating a fiscal commission that would make recommendations on tougher budget controls, Social Security, Medicare and tax reforms. We clearly need to do that to engage the American people and to get a vote in Congress in 2011. That's very, very important to maintain the confidence of our foreign lenders...if we lose the confidence of our foreign lenders, we're in deep trouble. Q. What does trouble look like?
A. That means the dollar will drop dramatically, interest rates will go up, unemployment would go up dramatically and you'll have something much worse than a recession. It would be ugly. The important thing is we can avoid that and that's what the book's about. Q. I know that you talk to lawmakers and testify in front of their committees, but do you have confidence that people in office get it and will do what's necessary to deal with the situation, even if it's unpopular?
A. Washington is a lagging indicator, but people around the country are starting to get it. The Massachusetts election was an expression of frustration that Washington is out of touch with reality and not working properly, especially in this area. If the people speak up, their leaders will follow.