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  • America the Broke
  • Written by Gerald J. Swanson
  • Format: eBook | ISBN: 9780385514002
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America the Broke

How the Reckless Spending of The White House and Congress are Bankrupting Our Country and Destroying Our Children's Future

Written by Gerald J. SwansonAuthor Alerts:  Random House will alert you to new works by Gerald J. Swanson

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On Sale: August 03, 2004
Pages: 224 | ISBN: 978-0-385-51400-2
Published by : Crown Business Crown Archetype
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Synopsis|Excerpt

Synopsis

The dirty little secret that neither George W. Bush nor Congress are willing to confront—that America’s reckless spending, disastrous deficits, and exploding debt are speeding our great nation to financial ruin.

Imagine a world in which you lose your job because your company goes under, your retirement money disappears, the value of your home tumbles overnight, your bank stops allowing cash withdrawals, and your ATM card is canceled. The price of groceries has risen so fast that you don’t have the money to pay for them at the check-out counter . . . and the country is bankrupt.

That is exactly the future that economist Gerald J. Swanson sees America hurtling toward—unless we rein in our country’s reckless spending. In America the Broke, Swanson, coauthor of the runaway New York Times bestseller Bankruptcy 1995, argues that the United States is on the brink of financial collapse. Thanks to George W. Bush’s two tax cuts, the White House and Congress’ escalation of domestic spending, two wars, and an economic recession, what was a $200 billion annual surplus three years ago under Bill Clinton has become a river of red ink. The White House’s official projected deficit for 2004 is $521 billion—the largest deficit in U.S. history. With a national debt spiraling upward of $7.3 trillion, a huge trade deficit, and personal debt at an all-time high, we are standing at the edge of a financial abyss that could undermine the financial security of our families and our children’s children.

“Deficits don’t matter,” claim Vice President Dick Cheney and other members of the Bush Administration. But the facts revealed in America the Broke paint an alarming picture.

Next year’s projected deficit will exceed the amount all our cities spend on police, fire protection, medical care, and every other civil service in an entire year. It is more than we could save from abolishing Medicare and Medicaid completely.
The real deficit—the deficit the government doesn’t want you to know about—including the hidden funds we “borrow” from Social Security is nearly $1 trillion.
Rising interest rates alone could trigger staggering payments on our skyrocketing debt, soaking up every dollar the government takes in, leaving America bankrupt.

What does this mean for you and me? If the dollar goes into free fall, banks could close, businesses go bankrupt, real estate values crumble, and middle-class families could lose everything they own.

But there is hope. We can save ourselves—if we demand that our political leaders act now to eliminate the deficit and reduce the debt. In a year of deficit denial, America the Broke is a critical wake-up call regarding our government’s reckless deficit spending—as well as a blueprint for rescuing our economy and saving our country

Excerpt

Introduction

What could destroy America?

One four-letter word: debt.

I didn’t intend to write another book on the deficit and debt. I’d already written one.

In 1992, with the national deficit at its highest in U.S. history and our debt rising to a staggering trillion dollars, Harry Figgie and I wrote Bankruptcy 1995, warning of the imminent collapse of our country within three years’ time if our leaders did not take the immediate steps to correct it. The book became a New York Times best-seller for more than nine months, selling more than 300,000 copies. But a miraculous thing happened. President Clinton and Congress, both Democrats and Republicans alike, heeded (some of ) our advice and exercised a certain degree of fiscal restraint. Taxes were raised; spending, while not cut back, at least remained constant; and the economy began to boom. Throughout Clinton’s years in office, the deficit was reduced each year, until, in his last two years, the government achieved surpluses. He even began paying down a portion of the debt. Problem solved.

But to my astonishment and consternation, in three short years our new President, George W. Bush, and his determined tax cutters, working with a Republican-controlled Congress, have unraveled eight years of fiscal responsibility. Through increased spending on domestic programs, defense, and entitlements, and two historic tax cuts, we are now, in 2004, projected to have the largest single deficit in history. The Bush Administration projects a $521 billion gap between the revenues our government takes in and what it spends. And, as I’ll point out later in the book, even this inflated figure is grossly understated. To be sure, President Bush has had to cope with several major crises–the recession of 2001, the terrible tragedy of 9/11, the wars in Afghanistan and Iraq, as well as an ongoing war against terrorism.

Wars are expensive. But never before has an American president attempted to enact a major tax cut (much less two of them) while fighting a costly war. Every wartime President before him has, out of fiscal necessity, raised taxes. And George W. Bush has led us through two wars (and an ongoing occupation in Iraq). One can debate the geopolitical necessity of invading Iraq. I don’t claim to have any special insights to offer. But on a fiscal level, the cost of the Iraq war in 2003 was a powerful shock to our economy. And the Administration makes no attempt to pay for that cost with offsetting cuts elsewhere–or even to include all the massive costs of the war in the budget. To me, that is irresponsible.

Our current national debt stands at $7.3 trillion. And it is rising by the minute. Divided per capita, it comes to $24,910 per person. Sooner or later, we have to stop the growth and start paying down our debt. Until that day comes, the interest will continue to eat up more and more of our tax dollars.

Add in consumer debt, which is more than doubling every 10 years, and our debt rises to $31,748 for every man, woman, and child. Tack on our mortgage debt of $7 trillion, and the number jumps to an astonishing $55,634.

Shocking, yes. But even more shocking is that our government lies about the commitments it makes in our names.

The Bush Administration, in collusion with Congress, has obfuscated the actual cost of rebuilding Iraq (perhaps by hundreds of billions of dollars). It hid more than $100 billion of its own estimate of the future cost of the Medicare drug benefits Congress passed in 2003. It “borrows” more than $150 billion a year from the Social Security “trust fund,” magically turns that theft into federal budget revenues, and merrily spends your retirement savings. By the broadest calculation yet, our nation’s total future obligation, in current dollars, is at least $44.2 trillion. It is a figure comprehensible only to mathematicians and astronomers, so let me translate: It means each and every American owes $150,829 in long-term tax obligations.

Add our per-capita national debt to our individual consumer debt and mortgage debt, and every single American owes $181,553. For a family of four, that’s a collective obligation of $726,212.

Of course, few American families own $726,212 in any form. How, then, will the government raise the trillions it’s committed to spend, as well as the trillions more it isn’t admitting it will spend? It will borrow. And borrow. And borrow. In so doing, it will pay more and more interest, consuming more and more of our tax dollars.

And one day soon, our government will suddenly run out of cash, unable to meet its payments, leaving the United States as bankrupt as any banana republic. We are far more vulnerable than most Americans realize. Only 23 years ago, in 1981, when interest rates last took off and rose to 20 percent, the total national debt was relatively modest–just over $1 trillion. Now, with a debt of $7.3 trillion, if interest rates were to hit just 18 percent, it would take every nickel collected in income taxes just to pay the interest on our existing debt. There would be no money left for defense, or homeland security, or education, or Social Security.

This scenario is hardly fiction. That the United States of America can literally go broke is no longer a fantasy but a likelihood–unless we stop the train now speeding us to Armageddon. If we do not get our financial house in order, and soon, I am convinced our great nation will collapse in a very short time under the weight of its financial obligations. I believe we can prevent the catastrophe: That’s what this book is about–a cry from the heart for millions to join in forcing that calamitous train to a screeching halt.

History teaches that, sooner or later, all great nations perish. According to eighteenth century Scottish historian Alexander Tytler, the average life span of leading civilizations is just 200 years. If true, the United States, at 200-plus years, may be living on borrowed time. Yes, we are still the world’s undisputed superpower. But we are frittering away the economic strength that supports our dominance. In a very short time, we could go from being a superpower to becoming super-powerless.

Tytler foresaw the explanation for our present plight. “A democracy is always temporary in nature,” he wrote. “It simply cannot exist as a permanent form of government,” because, sooner or later, “voters discover that they can vote themselves generous gifts from the Public Treasury. From that moment on,” Tytler observed, “the majority always votes for the candidates who promise the most benefits from the Public Treasury, with the result that every democracy will always collapse due to loose fiscal policy.”

That’s precisely what we Americans have been doing to ourselves. With few exceptions, our political leaders, Republicans and Democrats alike, have abandoned all pretense of fiscal responsibility. Spending is out of control, further ballooning the highest national debt in the history of the world. As I will show later, our current plight could touch off a world financial crisis and another Great Depression.

Before researching Bankruptcy1995, I had never taken more than a conscientious citizen’s interest in national politics. But my experience in writing the book opened my eyes to what really goes on in Washington. I realized how deeply addicted our leaders are to spending your money and mine–and our children’s–without even pretending to care about the consequences for our grandchildren. I am writing again in the hope and belief that when the people of this country truly grasp the deadly threat that lies before us, they will act to reclaim the legacy of self-reliance and responsibility that has made America great.

The federal government has become our nation’s foremost growth industry; the cost of running it, which came to $33 per person back in 1930, has multiplied by a factor of 172, to $5,700 a year today for every person in the United States. Worse yet, we are putting more and more of that bill on our national tab. Our expenses have overwhelmed revenues. The resulting tower of debt is wobbling dangerously over our heads. If this crisis isn’t addressed soon, it will ruin our country.

Alexander Tytler, whose ideas are sadly neglected these days, made another observation worth pondering. Since the Athenian Republic two millennia ago, he wrote, all democracies have progressed through the same stages: “From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependence; from dependence back again into bondage.”

From today’s perspective, the United States is somewhere in the latter stages of this great cycle. Our Pilgrim ancestors found the faith to deliver themselves from persecution in England, and then the courage to tame a wilderness. Their descendants inherited their courage and independence, and waged the desperate fight to claim their liberty and lay the groundwork for an abundance that would astonish the world. But abundance can produce selfishness, self-indulgence, greed, complacency, and apathy, until liberty itself is in danger.

In the 1970s, selfishness began to tarnish the postwar abundance of the 1950s and 1960s, followed by the aptly named “me generation” decade of the 1980s. Then came the long boom of the 1990s, which gave rise to the dot-com stock bubble and the greed and corporate fraud that destroyed Enron, Tyco, WorldCom, and other high-flying companies.

Today, complacency threatens our national well-being yet again. While politicians squabble endlessly over tax cuts and entitlement programs, pork-barrel spending and special favors for campaign contributors, our citizens seem indifferent to the growing wreckage. There are no appeals from our elected leaders to Americans to sacrifice for the common good. Washington’s fiscal recklessness has resulted in deficits as far as the eye can see. Will we have to plunge into national bankruptcy before our leaders act?

Already our leaders depend on domestic and foreign creditors to keep our government afloat. Sooner or later, our creditors will demand repayment. When we can’t comply, Tytler’s cycle will be complete: We will be back in bondage. The second chapter of this book paints a frightening picture of how such a collapse might look and feel to a middle-class American family.

Is it already too late? Is a crash inevitable? No. Our great nation can still avert calamity. We have always been a resourceful, resilient, and lucky country, and we will need all of that to survive the looming economic crisis. But we citizens first have to see the truth and find the determination and self-reliance to act on it. We need to tell our government leaders in no uncertain terms that their days at the public trough are over. We need to regain control over the budget–quickly. Together, we can do it. But time is short. This election year offers perhaps the last chance to persuade our leaders to change their course and act responsibly. In the final reckoning, it’s up to us to do what’s needed to save America’s future.


From the Hardcover edition.
Gerald J. Swanson

About Gerald J. Swanson

Gerald J. Swanson - America the Broke
GERALD J. SWANSON is the Thomas R. Brown Chair in Economic Education in the economics department at the Eller College of Management at the University of Arizona in Tucson, where he has been named outstanding teacher of the year. Swanson coauthored the New York Times Bestseller Bankruptcy 1995, which spent nine months on the NY Times Bestseller list.

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