For the last couple of weeks, Washington has been living in one of those Star Trek episodes where the computer is counting down to an explosion. Within days, the U.S. government either will or won't shut down because Congress either will or won't agree on a budget to cover us until September, the end of the fiscal year.
There's always a certain drama to a countdown. Star Trek may have skimped on special effects, but they knew how to use countdowns to keep viewers hooked. It seems like the computer was always announcing how much time was left until the Starship Enterprise would go into "autodestruct." To avoid having the spaceship blow up, both the captain and the first officer had to officially agree to turn the auto-destruct system off. In fiction, it provides a satisfyingly tense moment.
You could say the federal government is in an auto-destruct sequence now too, and that unfortunately, our leaders can't agree to turn it off. Even if we get through this current countdown without major damage to the economy or the country's standing in the world, the truth is that we have more countdowns ahead of us.
The countdown to the debt ceiling. For most of us, April 15 is usually tax day, but it's also the day that U.S. debt could hit $14.294 trillion. According to the Treasury Department's most recent estimates, we could reach the magic number anytime between April 15 and May 31. When we do, Treasury needs permission from Congress to issue any more Treasury bonds, which is how we borrow money. And the U.S. government can't function without borrowing money.
There is an unnerving lack of clarity about exactly what would happen if Congress doesn't go along. The Treasury does have a few maneuvers it can pull to delay hitting the ceiling, at least by a few weeks or months. Congressman Ron Paul believes that the government could just pay its bills as it goes along: "You could have priorities. You can pay the interest on the Treasury bills, so the foreign holders of the debt don't panic."
But Treasury Secretary Tim Geithner, Fed Chairman Ben Bernanke, and a slew of other experts think the reaction could be far less benign. In a worst case scenario, not raising the ceiling might undercut confidence in U.S. Treasury bonds, triggering the kind of debt crisis that upended the economies of Ireland, Greece, and Argentina. Essentially, we'd be telling the world that we don't know how to manage our money, which is unnerving to any lender. Geithner has warned that it could cause "catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009." For Bernanke, not raising the debt ceiling "would be extremely dangerous and very likely a recovery-ending event." And given how long it's going to take us to sop up the red ink, Congress will be facing "debt ceiling" decisions every couple of years for a very long time. It's not over until it's over, as Yogi Berra warned us.
The countdown to 2019. If nothing changes, according to the General Accountability Office, this is the date when nearly every penny the government collects in taxes will be needed to cover spending on Medicare, Medicaid, Social Security, and interest on the debt -- around 90 cents out of every dollar is the attention-getting GAO factoid. With an aging population, rising health care costs, and gargantuan budget deficits driving up interest costs, spending in these categories could crowd out spending for just about everything else we expect government to do. We have about eight years to head this one off at the pass, but neither Congress nor the Administration has offered much of plan as of yet.
The countdown to 2021. This is when the GAO estimates the debt held by the public will break its previous record of 109 percent of gross domestic product, set right after World War II. Essentially, the nation's debts will be bigger than the entire economy. When a country's debts get that big, it could start dragging down the overall economy, or even lead to a European-style debt crisis.
Nobody really knows when the U.S. national debt would become "too big." Greece imploded when its debt was about 115 percent of GDP, but Japan's is already past 200 percent. Even in the aftermath of the tsunami, it hasn't caused a debt crisis yet because Japan's economy is bigger and healthier than those of Greece or Ireland. Plus, about 95 percent of Japan's debt is held by Japanese investors. Only about half of U.S. debt is held in the United States.
If present projections hold, the U.S. debt would hit 200 percent around 2033, and when you're that far in the red, you're always walking around with the auto-destruct switch armed. That's why the world financial markets held their breath after the Japanese tsunami -- at that level of debt, anything might set off a financial crisis.
Despite the inside-the-Beltway drama, most Americans haven't been focusing that much on the debate over this year's budget. Surveys routinely show that much of the public is poorly informed about basics such as where the money in budget actually goes and how much can be saved by cutting funding for foreign aid and the space program (not much, just to be clear about it).
So the clock is running. Either we make some meaningful decisions on the budget, or we stand by while the auto-destruct sequence starts. And unlike the crew on Star Trek, we can't count on Captain Picard and Gene Roddenberry to rescue us just before the two-minute warning runs out.
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