It's roughly half time in the primary season, and the GOP ought to start playing like a winning team, suspending negative attack ads against Republican rivals and taking an offensive position against the real opponent. Going positive with a message about saving the very programs that are dear to the Democratic Party – by aggressive action to balance government revenue and outlays and reengineer a high-growth economy – would be a startling reversal and get peoples' attention.
Reminding voters that the nearly $6 trillion that President Barack Obama will have added to the national debt in his first term equals the entire accumulated debt of the country's first 225 years is shocking by itself. President Obama's recent budget – which adds another $6.7 trillion in deficits and debt over 10 years – suggests a second term is a risk the nation can't afford.
Leadership requires candor with the American people about what's required to avoid national insolvency. The federal government borrows 40 cents of every dollar it spends, which equates to borrowing nearly $4 billion a day. Nobody in their right mind pays the mortgage with a credit card, yet this behavior has become Washington's way with its ongoing borrowing to finance its deficits and debt. As events in Greece show, there's no good end to a nation's compounding of debt.
S&P already cut the U.S. triple-A credit rating, and Moody's and Fitch have also warned against kicking the can down the road. As Margaret Thatcher once said about advanced welfare states: "The problem ... is that sooner or later you run out of other people's money." Without reform, Social Security and Medicare will go the way of all Ponzi schemes – they will collapse.
Deficit spending financed by debt and money printing is unsustainable. It will trigger significantly higher inflation and further destruction of the dollar. The fact is current policies put the greatest risk on the middle and lower class and jeopardize the very social welfare programs that Obama and the Democrats claim to champion. They have most need for a safety net because of their smaller base of savings and investments. And they are precisely the ones wiped out by inflation and a collapsing dollar – an all but inevitable outcome barring a major course change.
The would-be GOP front-runner might also draw from Ron Paul's play book. First, reclaim the good name of the free market by declaring war on crony capitalism – ending subsidies, tax loopholes and special deals. Second, demand an audit and reform of the Federal Reserve, which has become Washington's handmaiden in monetizing debt and facilitating deficit spending with abnormally low interest rates. Just a few years ago, it was inconceivable for the Fed to punish savers and set interest rates at zero for an extended period of time. Say what you will about Ron Paul. He is a modern-day Paul Revere.
If 1 percent money for one year under former Fed boss Alan Greenspan set the stage for the housing bubble that burst and caused such havoc, shouldn't there be concern about a bigger crisis resulting from current Chairman Ben Bernanke's five years of zero-percent money? The mother of all bubbles may well be lurking within the world's largest asset class – U.S. Treasury bonds. The catalyst for the next financial crisis could come anytime. It could stem from foreigners shunning further purchase of U.S. Treasuries or a loss of dollar's status as the world's reserve currency.
The cost of financing U.S. debt for the past 100 years has averaged about 5.25 percent annually. With the Fed's manipulation of interest rates, the cost of the nation's debt is now at an all-time low of 2.24 percent, while that debt is the largest relative to gross domestic product it has ever been in peacetime. Even if we are fortunate enough to escape a bond market collapse or the spiking of interest rates from inflation, interest rates will normalize and rise. Absent substantial reform, normalization of interest rates alone will absorb much more of the budget and potentially crowd out essential funding. These constraints and the loss of flexibility drive home why change is so desperately needed.
History shows that presidential leadership is indispensable in getting the federal budget under control. Barack Obama has been AWOL on this most vital issue upon which the future depends.
The would-be GOP front-runner should remember that winning in politics is easier when it is played like sports. Take control of the ball, stay on the offensive, and relentlessly go after your opponent's weakness.
Scott Powell is a senior fellow at the Discovery Institute and a managing partner at RemingtonRand LLC.